Preamble

The House met at half-past Two o'clock

PRAYERS

[MR. SPEAKER in the Chair]

Oral Answers to Questions — HEALTH

Out-patients

Mr. Patrick Thompson: To ask the Secretary of State for Health what is the number of out-patients currently being treated by the National Health Service; and how many were treated in 1979.

The Parliamentary Under-Secretary of State for Health (Mr. Roger Freeman): In the calendar year 1979, some 7·7 million new out-patients attended NHS hospitals in England. In the year ended 31 March 1989 the equivalent figure was 8·4 million.

Mr. Thompson: Do not those figures give the lie to continual talk about cuts and financial difficulties in the Health Service? Can my hon. Friend confirm that in the Norwich health authority area 60,000 more outpatients were treated in 1989 than in 1979—an increase of 25 per cent.? Is that not a good record of which Norwich health authority and the Government can be proud?

Mr. Freeman: I am grateful to my hon. Friend. He is absolutely right, and I confirm his figures. For the country as a whole, real expenditure on out-patient services has increased by 26 per cent. in the past 10 years.

Mr. Bill Walker: Does my hon. Friend agree that those figures clearly illustrate that the massive sums spent by the Government have reduced waiting lists and, in real terms, have allowed many more patients to be treated? That is surely what the Health Service is about, and we must continue to get better and more efficient use of the vast sums of money that are put in.

Mr. Freeman: I am grateful to my hon. Friend. Most hon. Members would agree that we can do even better in terms of service in out-patient departments, particularly appointment times. In December last year, the Department of Health issued a report recommending how out-patient waiting times can and should be reduced to give a better appointment system.

General Practitioners

Mr. John Marshall: To ask the Secretary of State for Health what is the current level of general practitioners' remuneration; and what it was in 1979.

The Secretary of State for Health (Mr. Kenneth Clarke): From 1 April 1990, the intended average net remuneration

for general practitioners will be £33,280 and the average reimbursement of expenses £42,843. On 1 January 1991, the figure for remuneration will rise to £34,680. The corresponding levels of remuneration and expenses in 1979 were £12,830 and £11,355 respectively.

Mr. Marshall: When my right hon. and learned Friend next meets the British Medical Association, will he suggest that it gives publicity to those figures, which are responsible for the fact that we now have more general practitioners than ever and the average GP patient list is shorter than ever?

Mr. Clarke: I shall put my hon. Friend's excellent suggestion to the BMA when I next meet it. It is certainly the case that the number of GPs in this country has gone up by almost one fifth and lists have become much shorter while the Government have been in power. I expect that the number of GPs will continue to rise because of the attractive figures that I have described, and that lists will continue to fall.

Mr. Spearing: In respect of future remuneration of GPs, is the Secretary of State aware of the anomaly produced by the Jarman indices? Is he aware that in future GPs in the London borough of Newham are scheduled to receive different additional payments in relation to the wards in which their consulting rooms are located? He must surely know that ward boundaries, in his constituency and elsewhere, are arbitrary and that a GP's patients will not necessarily live in an adjacent ward. Will he look at what appears to be an arbitrary and unsatisfactory system for an area which is greatly in need of medical services?

Mr. Clarke: I am keen on the idea of increasing remuneration for those GPs who work in deprived districts, particularly inner city areas. I am glad that I reached agreement with the BMA on that subject. We have agreed that we should apply the Jarman index, but in applying it, it is inevitable that once boundaries are drawn some GPs will be disappointed if they are just the wrong side of them. We have introduced a significant extra incentive to GPs to give the higher levels of service required by people in deprived districts. I shall keep the operation of the arrangements under review, as the hon. Gentleman suggests.

Dame Jill Knight: Does my right hon. and learned Friend agree that it would be excellent if more members of the public realised that general practitioners are so well paid? However, will he bear in mind the problem for some GPs with the immunisation bonus payments, which require four separate actions for the child and unless all four are completed the GP will not be deemed to have carried out the treatment?

Mr. Clarke: The public should be aware that GPs are well paid, and I am sure that my hon. Friend agrees that it is right that they should be. No one has ever sought to interfere with that. Our new arrangements carefully spell out, for the first time, what we expect the best practices to deliver and how they will be paid for the best levels of service. It is true that immunisation targets will be met only when full immunisation has been given; otherwise, the child would not be properly protected. I am confident that the targets will be achieved by GPs, although I am the


first to acknowledge that it involves considerable hard work and application by a practice to achieve the higher targets that we have laid down.

Residential Homes

Mr. Turner: To ask the Secretary of State for Health if he will bring forward proposals requiring the disclosure of criminal convictions by persons who are, or intend to become, proprietors, managers or care staff in private residential or nursing homes.

Mr. Stott: To ask the Secretary of State for Health if he will bring forward proposals requiring the disclosure of criminal convictions by persons who are, or intend to become, proprietors, managers or care staff in private residential or nursing homes.

The Minister for Health (Mrs. Virginia Bottomley): Registering authorities should ask an applicant for registration to provide details of any previous criminal convictions. We plan to strengthen that by requiring applicants to declare previous criminal convictions when the regulations made under the Registered Homes Act 1984 are next revised.

Mr. Turner: That appears to be progress. It is clear that hon. Members and many people outside the House do not understand why there are different criteria—that which applies to children's homes and those who work in them and that which applies to the elderly and the handicapped. They are all vulnerable groups and they need protection. I hope that what the Minister has said will be enacted quickly.

Mrs. Bottomley: I am most sympathetic to what the hon. Gentleman has said. We are already having discussions with the Home Office. He will be aware that work has started to ensure that criminal records are available for those in the public sector who look after children. There is a new development in voluntary child care, which will be an additional area of activity.

Mr. Rowe: My hon. Friend knows that anxiety about criminal records is felt on both sides of the House. Does she agree that a valuable step in controlling that sort of abuse will come from both the operation of contracts and the work of care managers? Does she further agree that if that is done properly it should make a big difference?

Mrs. Bottomley: I am grateful to my hon. Friend, who is knowledgeable about these matters. There is no doubt that our community care proposals will enhance the safeguards for individuals who are the subjects of community care—not only the contracts, but making complaints procedures freely available. Those additional safeguards for the frail and the vulnerable, whom we all seek to help, have been written into the Bill.

Ms. Harman: Is the Minister aware of the case of Olive Wareing, who is in prison for the latest in a string of criminal convictions against elderly people in her care in old people's homes? Does the Minister share my concern that when Olive Wareing leaves prison she can set up an old people's home again and avoid registration provided that there are fewer than three residents in her care? Will the Minister act to plug that dangerous loophole in the law?

Mrs. Bottomley: The hon. Lady frequently mentions names in her questions. The name in the minds of many Conservative Members is Nye Bevan lodge. Whether in the public or the private sectors, standards must be maintained and protected. As the hon. Lady well knows, during our discussions on the Bill we sought to find a way to introduce controls over smaller homes which did not come within the scope of the Bill. We have made it clear that we are seeking a legislative opportunity to ensure that there is some control over the smaller residential homes.

Mr. John Greenway: May I refer my hon. Friend to the report that the Select Committee on Home Affairs published last week about the National Identification Bureau? The report makes a number of recommendations to improve the availability of criminal records, which is rather haphazard at present—there certainly seems to be no uniform policy. No doubt my hon. Friend will wish to discuss with my right hon. and learned Friend the Home Secretary just how those proposals could help to monitor those who have access to individuals, whether through care homes or in any other part of the Health Service, particularly those dealing with children and elderly people? Will she also take care to ensure that, whatever standards are set, the private sector is not discriminated against?

Mrs. Bottomley: I thank my hon. Friend for his question. I shall certainly study the report to see what further progress can be made. Those responsible for frail and vulnerable people are concerned that such people should be protected. Those responsible for them are in a position of trust. I fully endorse my hon. Friends comments. We seek a mixed economy of care whether in the private, public or voluntary sector. We want high standards of care, with dignity and choice for the elderly.

NHS Reform

Mr. Cryer: To ask the Secretary of State for Health what are the total estimated costs of the opting-out submissions made for the National Health Service hospitals; and if he will make a statement.

Mr. Kenneth Clarke: Applications for NHS trust status will not be invited until Parliament has given approval to the necessary legislation. We have made no estimate of the cost of preparing such applications.

Mr. Cryer: Does the Secretary of Health accept that people will regard it as an outrage if a single pound is spent on opting-out submissions, particularly in areas such as Bradford, which has the highest infant mortality rate in the Yorkshire region. If the Minister is so confident about the opting-out process as the first step to towards privatisation, why does he not hold a ballot in Bradford and other areas? Why does he collaborate with serville administrators who are the enemy within the National Health Service led by the Minister as chief saboteur?

Mr. Clarke: I have no doubt that the hon. Gentleman will try to get the public to feel a sense of outrage about almost anything that happens in the Health Service in Bradford, but I do not recognise his description of current events. I am pleased that he has turned his mind to the possible deficiencies and weaknesses in the standard of care provided in Bradford at the moment. I hope that he will give his support to all those local people in Bradford


who want to address them and that he will support anybody in Bradford who thinks that being given more local control over how they tackle the problems might improve things.

Mr. Hayes: Does my right hon. and learned Friend agree that none of the real benefits of self-governing trust status will materialise without a clear commitment for regional health authorities to produce speedy and workable plans for weighted capitation? Will he give them a clear message that there must be no room for backsliding or fudging because money travelling with the patient is the essence of those reforms?

Mr. Clarke: We are committed to ensuring that money is placed in the hands of the districts according to the number of their population adjusted for the age and propensity to sickness of that population. We will have to phase in progress to that end to make sure that there is no disruption of the system. However, I can assure my hon. Friend that as from next year, districts such as his own will receive funds on the basis of what they are now spending on their service—which, not surprisingly, is the basis of the present allocation. I am pleased to hear that in Hertfordshire people are now considering how they could use that money to improve the service further. I am sure that GPs, patients and others will be thinking about how to use the funds allocated to them on the new basis.

Mr. Battle: Is the Secretary of State aware that in Leeds, West, where the community health council balloted the staff at the Leeds General infirmary on proposals for opting out, nine out of 10 voted against the proposals? Now that the proposals have been widened to include other hospitals and institutions in Leeds, West, and detailed plans have been put forward, will he assure me and the House that there will be a full ballot of staff and people in the area before those proposals are taken a step further?

Mr. Clarke: If the staff are given a description of NHS trust status which makes their blood run cold and their hair stand on end, one tends to find that in a subsequent ballot nine out of 10 say that they are against it. Ballots of that kind remind me of "Beyond the Fringe", many years ago, in which one of those who took part said that when they balloted people on whether they wanted their wives and kiddies fried to a frizzle in a nuclear holocaust 90 per cent. said no, 5 per cent. said yes, and 5 per cent. did not know. Such ballots do not add to public understanding of our Health Service reforms.

Mr. McCrindle: Would it not be a helpful if the first task of the newly recruited public relations adviser to my right hon. and learned Friend the Secretary of State were to take steps to persuade the general public and, apparently, some Members of Parliament that the term "opting out" is a misnomer and that in no circumstances will hospitals which choose to take part, be operating outside the National Health Service?

Mr. Clarke: I do not have a public relations adviser and I do not intend to have one. [HON. MEMBERS: "Why not?"] I shall continue to tackle the problem of explaining the NHS reforms to the public myself. The difficulty, which is not encountered in the commercial world is that the public are constantly being given counter-explanations by those who make sensational statements about opting out and

what it might mean. When we come to the reality and people can look at local plans put forward by local doctors, nurses and managers, we can have a sensible debate about what NHS trust status might do to improve the Health Service in many areas, including possilbly Bradford and Leeds.

Hospital Closures, Sheffield

Mr. Duffy: To ask the Secretary of State for Health when he next expects to meet the chairman of Trent regional health authority to discuss hospital closures in Sheffield.

Mr. Freeman: Ministers will meet the chairman of all the English regional health authorities, including Trent, at the next regional meeting in May.

Mr. Duffy: When Ministers meet the chairman will they ask him how he defends Sheffield's preferred overall pattern of acute hospital services for the future, which does not take into account bed requirements and will undoubtedly lead to the closure of two support hospitals? Will the Minister also ask the chairman about future demand for beds for the elderly and the possibility of future major accidents?

Mr. Freeman: As my right hon. and learned Friend the Secretary of State has said, from next year we shall begin the process of funding district health authorities on the basis of weighted capitation. Therefore, over a period of years there will be a fair allocation between different parts of the country—for example, between Sheffield and Sevenoaks. As I understand it, there are not yet any formal proposals for Sheffield. There is merely a plan. I assure the hon. Gentleman that if specific proposals are made, to which the community health council has objections, and if those objections are maintained by the regional health authority, the proposals will be brought to Ministers and the hon. Gentleman will have a chance to put his view directly.

Mr. Sayeed: Will my hon. Friend confirm that the revenue of Trent regional health authority has once again increased faster than inflation? Would he care to compare that with what happened to the health authority under the Labour Government?

Mr. Freeman: I am grateful to my hon. Friend for reminding the House that the total increase for hospital services in the current year is about 8·5 per cent. in cash terms. In real terms the increase in funding for the National Health Service in the past 10 years is about 40 per cent. Every region in the country has benefited from increased expenditure this year. Every region has benefited from a real terms increase.

Community Care

Mr. Morley: To ask the Secretary of State for Health what representations he has received regarding the funding arrangements for local authority community care.

Mrs. Virginia Bottomley: We have received many representations about the new arrangements for funding community care outlined in our White Paper "Caring for People".

Mr. Morley: Is the Minister satisfied that the concept of community care is being implemented in our communities when local government is suffering from the imposition of the poll tax and in many instances bizarre calculations of the standard spending assessment have been made? The SSAs do not take into account local needs in areas with large numbers of elderly people. Elderly people have particular problems in terms of mental illness. Is the Minister aware that in some areas local hospitals have had to turn away people with mental problems who need mental care because the facilities for them are not adequate due to lack of funding? Will the Minister ensure that the necessary funding and commitment is given? We want action and results, not promises.

Mrs. Bottomley: Many local authorities are making good progress in drawing up their plans for care in the community. We are having discussions with the local authority associations about the precise nature of the funding which will be required when those plans come into effect.

Dame Elaine Kellett-Bowman: Is my hon. Friend aware that Inward, which does admirable work in my constituency for ex-drug users, is worried about the new funding rate? I have written to my hon. Friend today about that. Can she do something to ensure that the valuable and unglamorous work that that organisation does is not in any way frustrated?

Mrs. Bottomley: I should like to reassure my hon. Friend that many voluntary organisations which over many years have had a precarious financial base, will have their position safeguarded under the community care plans. Not only will the district health authority have to look to the health needs of the local population, but the local authority, in drawing up its community care plans, will need to see how especially needy groups can have their needs met. If my hon. Friend has any further difficulties, no doubt we can discuss the matter further.

Mr. Frank Field: Will the Minister list for the House those organisations which support the Goverments's stance not to ring-fence money for community care?

Mrs. Bottomley: I am unable to list them at this moment, but I will let the hon. Gentleman have a reply. The key point about ring fencing is that it essentially undermines local accountability. I hope that the hon. Gentleman wants to see that the money set aside for community care is put to good effect. Local authorities have well safeguarded their personal social services spending over the years. It has risen by 38 per cent. I do not believe that one needs to undermine the basic principle of local Government accountability to achieve the end that we both share.

Nurses and Midwives

Mr. Bright: To ask the Secretary of State for Health how many nurses and midwives there are in the National Health Service now; and how many there were in 1979.

Mrs. Virginia Bottomley: At 30 September 1988, there were 403,900 whole-time equivalent nursing and midwifery staff in the National Health Service in England. The comparable figure for September 1979 was 358,400

whole-time equivalents. That is an increase of 12·7 per cent. The increase in qualified staff over the same period was 26 per cent.

Mr. Bright: Does my hon. Friend agree that, once again, those figures nail the lie that the Government are making cuts in the National Health Service? Is it not also a fact that since 1979 the average nurse's pay has risen by about 43 per cent. in real terms?

Mrs. Bottomley: My hon. Friend, as ever, is extremely well informed. I can confirm those figures. Once again, they are a clear indication of the Government's support for the Health Service. I can inform my hon. Friend further that in inner London, for example, a top-grade sister is now earning £17,000—50 per cent. more than she would have done 10 years ago.

Mr. Robin Cook: Does the Minister recall her own parliamentary answers to me which showed that there was a bigger increase in the number of nurses and doctors in five years of the previous Labour Government than there has been in 10 years of this Government? Is not the achievement on which she is inviting the House to congratulate the Government the achievement of having managed to more than halve the rates of increase in both professions?

Mrs. Bottomley: I find it surprising that the hon. Gentleman should wish to draw attention to his own record in Government when those very nurses—my hon. Friend the Member for Luton, South (Mr. Bright) referred to their considerable pay increase of 43 per cent.—saw their pay fall by 21 per cent. under the Labour Government.

Day Patients

Mr. Ian Taylor: To ask the Secretary of State for Health what is the number of day patients being treated annually by the National Health Service; and how many were treated in 1979.

Mr. Freeman: Between 1979 and 1988–89 there was an increase in day-case admissions for England—from about 600,000 to just over 1 million, representing a 70 per cent. increase.

Mr. Taylor: I am grateful to my hon. Friend for that answer. Is he aware that in the Kingston and Esher district health authority, which covers part of my constituency, the increase has been getting even better? During the past two years, the surgical day unit has treated 20 per cent. more patients, and last year it dealt with 5,431 patients. Is that not a sign of increasing efficiency in the unit which bodes well for the work of the NHS trust project team?

Mr. Freeman: I am grateful to my hon. Friend. An increase in day surgery is good for patients because they appreciate the chance to have their operations done more quickly and perhaps less invasively, and it is good for the National Health Service because the resources needed to care for the patient coming in for day surgery are clearly fewer. Many hon. Members and their families may have cause to be thankful for day surgery in the coming years—especially, for example, for cataracts, grommets for their children or female sterilisation, three operations now performed by day surgery but which hitherto required a long in-patient stay.

Mr. Boswell: Does my hon. Friend accept that day care represents a cost-effective way of delivering more care to more patients more quickly, provided only—perhaps my hon. Friend can confirm that this is so—that there has been no decrease, but rather an increase, in the number of patients who have been admitted to hospital for operations and other treatment?

Mr. Freeman: I give my hon. Friend that assurance. There has been an improvement in day surgery figures and out-patients and ward attenders—those who go to a ward for minor surgical treatment—have also increased in number, as have in-patients coming in for longer stays. The average length of stay is decreasing, and that is good for patients and for the National Health Service.

Internal Contracts

Mr. Conway: To ask the Secretary of State for Health whether the National Health Service has any experience of the use of internal contracts.

Mr. Page: To ask the Secretary of State for Health what experience there has been of internal contracts within the National Health Service.

Mr. Kenneth Clarke: The recent document "Contracts for Health Services: Operating Contracts", which is in the Library, contains examples of contracts between NHS bodies. Most come from various district health authority pilot projects supported by my Department to prepare for the implementation of our reforms of the National Health Service. They demonstrate how contracts will benefit patients by specifying the services and quality of care to be provided.

Mr. Conway: I am grateful to my right hon. and learned Friend for his reply. As most health authorities have experience of internal contracts, is not it nonsense to suggest that the schemes are untested? Will my right hon. and learned Friend assure the House that he will not delay his reforms until all the pilot schemes have been implemented?

Mr. Clarke: A clear majority of authorities have experience of contracting with various bodies; the figure is well over 60 per cent. There are some established and running internal contracts. For example, the contract between Harefield hospital and South Glamorgan, has run without controversy for some time. I agree with my hon. Friend that we must continue to pilot contracting by continuing to finance the work being undertaken at present so that we can be ready by April next year. There is no case for delay because active preparation is well advanced.

Mr. Page: But does my right hon. and learned Friend accept that the National Health Service is not necessarily the swiftest organisation to take on board new ideas and bring them into practice? A number of authorities are slightly concerned that a blockbuster approach may be used. Does my right hon. and learned Friend agree that a simple and more evolutionary approach would be better in the introduction of this method, and would benefit patients?

Mr. Clarke: I agree with my hon. Friend, and I reassure him that we have been urging a simple and evolutionary approach on health authorities since last summer. We

expect the majority of health authorities to begin with block contracts with straightforward specifications of what they want. We envisage that health authorities, hospitals and GPs will begin by getting their existing pattern of referral of patients in place within the contract system. Thereafter, they will know what they will spend on each part of the service and what quality they are getting and they can work together to make the system more sophisticated and improve the quality of care that they give to patients.

Mr. Redmond: Does the Secretary of State accept that the National Health Service is far too important for the same mess to be made of it as the Government have made with the poll tax? Before he spends one penny on training staff, will he ensure that the public have the chance to have their say through the ballot box, or is he frightened of democracy?

Mr. Clarke: I certainly agree that the National Health Service is far too important for us to make a mess of reforms intended to improve it, although I do not accept the hon. Gentleman's comparison. We certainly do riot intend to make a mess of the National Health Service reforms. The answer lies in the supplementary question asked by my hon. Friend the Member for Hertfordshire, South-West (Mr. Page). There will not be a sudden transformation of the world next April or a blockbuster change to the system. We shall have improvements for which everyone has worked and prepared. Thereafter, we shall see steady improvements throughout the 1990s, as the benefits of better management work their way into the service and we concentrate on quality.
I am all in favour of consulting at every stage—for example, over the National Health Service trusts—but I do not think that the rather foolish local ballots being organised by the trade unions and the Labour party are helping to explain the issues or allay public concern.

Mr. Kennedy: Does the Secretary of State agree that if he is to push ahead with the contracts, everybody will want to judge how well they are operating, and that a key factor in making that judgment will be the flow of information available which will depend heavily on the ability of hospitals and health authorities to introduce proper and full computerisation? Will the right hon. and learned Gentleman therefore pay heed to the point that I have raised with him before—that many people in the National Health Service are saying that the money and time required to computerise to the level of sophistication necessary to monitor the system and make it work as the Government want it to are not available?

Mr. Clarke: I hope that the hon. Gentleman will agree that the Health Service needs to be computerised and that it needs information systems to enable everyone concerned to run it better. That would have been needed whether or not we reformed the Health Service and it will take some years to achieve a good up-to-date level of information systems.
However, I do not accept that we cannot start the process of reform until we have completed that investment. The experience of contracting was not based on modern information systems. We are allocating a lot of money to update those systems, but we can begin with the basic contracting system next year on the basis of the


information that we already have. We can start it simple and then sophisticate it afterwards as the information systems come along.

Royal Colleges of Medicine

Mr. Burt: To ask the Secretary of State for Health when he last met representatives of the royal colleges of medicine; and what matters were discussed.

Mr. Kenneth Clarke: On 4 April, I met representatives of the medical royal colleges along with representatives from the dental, midwifery and nursing royal colleges to discuss ways of safeguarding and securing improvements in clinical standards for National Health Service patients after the introduction of our NHS reforms in April next year.

Mr. Burt: Does my right hon. and learned Friend recall that he dug the first turf at the new general hospital in Bury a few years ago, thereby demonstrating his and the Government's commitment to high quality and good service in the NHS? When does he think that the royal colleges will finally realise that that same determination for quality and service runs through the health reforms that my right hon. and learned Friend is pursuing? When does he think that they will finally welcome some of the quality initiatives that we have taken instead of being so keen to criticise?

Mr. Clarke: I well remember turning the first sod in my hon. Friend's constituency and I still have the spade in my study to remind me of that happy event. I am delighted that that new hospital is now operational.
With regard to quality, I accept that the royal colleges still have some concerns about the impact on clinical standards although I do not believe that those concerns are well founded. For that reason, I have been having a dialogue with all the royal colleges and I want them to make a positive contribution by helping to monitor clinical standards in the improved NHS in the 1990s. I detect a preparedness on the part of the royal colleges to contemplate that and a willingness to reach agreement if we can.

Mr. Winnick: As the royal colleges have expressed some concern about opting out, should not they be told by the Secretary of State that a referendum was organised in my borough by the local council with questions that were approved by the local health authority and that more than 78 per cent. said that they were against opting out? If there were referendums in other parts of the country, is not it clear that the results would be the same? That is why the Secretary of State is so hostile to balloting and why he is so fearful of people being able to express their views. All the public relations advisors in the world will not be able to sell that idea to the British public.

Mr. Clarke: The Labour party is quite bereft of any contribution to the debate on National Health Service reforms. Labour prefers to publicise ill-founded fears about what might occur and then carry out ballots afterwards like a lot of demented amateur Gallup pollsters. That is not a sensible approach to NHS reforms.

Mr. Nicholas Winterton: How does my right hon. and learned Friend equate his remarks in respect of the National Health Service and Community Care Bill with

remarks made yesterday by my hon. Friend the Under-Secretary of State for Health to people from MIND when he said that hundreds of mentally ill patients have been dumped on the streets and that he is determined to give those people a new deal? Will my right hon. and learned Friend the Secretary of State tell us how the Government are going to give a new deal to those hundreds of mentally ill people who have been dumped on the streets because of a lack of places in appropriate hospitals?

Mr. Clarke: My hon. Friend the Under-Secretary of State for Health used slightly different language and a slightly more analytical approach to a serious problem about which I know my hon. Friend the Member for Macclesfield (Mr. Winterton) feels strongly. As my hon. Friend the Under-Secretary said yesterday, he has put a great deal of work into preparing an initiative on that subject because we all know that mentally ill patients have fallen through the net and become homeless in London. When my hon. Friend the Under-Secretary is ready with the details, he will announce what I believe will be an extremely valuable new initiative to tackle that serious problem.

Mr. Robin Cook: I congratulate the Secretary of State on having achieved unity among the royal colleges for the first time in the 40-year history of the NHS. Did he see their joint statement in the week he met them in which they concluded that there was no evidence that his changes will improve the standard of care, access to care, choice of care or even the cost-effectiveness of care? Why do Ministers persist in thinking that more than 20 colleges have got it wrong and that only they have got it right?

Mr. Clarke: The hon. Gentleman should stop taking questions from my Parliamentary Private Secretary and answering them. The hon. Gentleman knows perfectly well that the royal colleges support the vast bulk of what we are doing, including the introduction of the resource management initiative and the introduction of clinical audit, in which the royal colleges are playing a leading role. I have already recognised that they still have some concerns about the consequences of the reforms, but at my meeting it was clear that the royal colleges wish to reach agreement with the Government on how standards can be monitored and supervised after we introduce the reforms next year.

Clinical Standards

Mr. Dykes: To ask the Secretary of State for Health if he will make a statement on his Department's proposals for future monitoring of clinical standards in the National Health Service and the terms of reference of any monitoring agency.

Mr. Kenneth Clarke: On 4 April, I invited the presidents of the dental, medical, midwifery and nursing royal colleges for talks on the assessment of clinical standards for National Health Service patients after the proposals in the National Health Service and Community Care Bill are implemented. I put forward ideas for setting up a national multi-professional clinical standards advisory group. That was broadly welcomed by the professions, but further discussions will be needed on the way in which such a group might operate.

Mr. Dykes: I thank my right hon. and learned Friend for that answer. Will he confirm that he and the Department are most enthusiastic about the new proposal and getting the system right? Will he say a little more about the composition of the advisory group? It will be of critical importance in reassuring all opinion—lay and medical—that the standards will e properly monitored.

Mr. Clarke: I am grateful to my hon. Friend because, in broad terms, his reaction is the same as that of the presidents of the medical, nursing and dental colleges. We all agreed that we need more talks about how such a system might work, be financed and so on. On the whole, the composition of any group would need to be determined by the medical, nursing and dental royal colleges, and comprise representatives from all the professions to work on a multi-disciplinary basis.

Mr. Michael Morris: Is my right hon. and learned Friend aware that perhaps we could learn a lesson from the United States, where peer review organisations examine about one in four operations and determine whether it was necessary in the first place, at what cost it was done and how successful it was? Such detail is more likely to result in patient satisfaction than some overall national body.

Mr. Clarke: I do not envisage a national body taking over the detailed operation of local services. I envisage a national body that will be available as a source of advice if people encounter local difficulties. I agree with my hon. Friend that we require what I call systematic quality control, which is usually described as audit control. We are drawing on American experience, but the royal colleges and the Government would like an even better system introduced in all branches of the National Health Service.

Dr. Kim Howells: On the monitoring of the health of any community, will not the Secretary of State admit that family practitioner committees are extremely worried about the lack of morbidity statistics in terms of their ability to play a constructive role—if that is not a contradiction in terms—in how the NHS reforms are now being applied?

Mr. Clarke: We have morbidity statistics. I have not had representations from English medical practitioner committees about the inadequacy of the statistics, but I shall certainly make inquiries to see whether the federation believes that it is a problem or whether there is a particular problem in Wales.

General Practitioners

Mr. Hanley: To ask the Secretary of State for Health what is the number of general practitioners in the National Health Service now; and what it was in 1979.

Mrs. Virginia Bottomley: At 1 October 1988 there were 25,322 GPs in England. That compares with 21,357 at 1 October 1979, an increase of 18·6 per cent.

Mr. Hanley: Bearing in mind the substantial increase in the number of GPs and the fact that our population is static, will my hon. Friend explain why some doctors believe that service to patients will reduce because list sizes will increase?

Mrs. Bottomley: I am quite unable to explain it. As my hon. Friend rightly says, the population remains static. There are more GPs joining the lists each year and we have seen lists come below 2,000 for the first time. That is a major achievement and it leads to better patient care.

Mental Handicap

Mr. O'Brien: To ask the Secretary of State for Health if he will bring forward proposals to improve the availability and quality of day care services for the mentally handicapped.

Mr. Freeman: Local authorities are primarily responsible for providing day services for mentally handicapped people. The recent social services inspectorate report, "Inspection of Day Services for People with a Mental Handicap", suggested a number of ways in which day services could be improved within existing resources.

Mr. O'Brien: Because of the haste to close mental handicap hospitals and discharge mentally handicapped people, because of the problems facing local authorities—with restrictions on financing and the fact that the money allowed to them is not ring-fenced and there is no guarantee that there will be a sufficient increase to allow for inflation—and because every pound spent above the level of assessment set by the Government under the poll tax arrangements for services for the mentally handicapped means a £4 increase in the poll tax, when does the Minister intend to do something to provide real services for the mentally handicapped?

Mr. Freeman: There is no rush to close mental handicap hospitals. The closure programme and the discharge of patients back into the community from mental handicap hospitals is relatively slow. As for the transfer of resources from the Health Service to local authorities for patients discharged, we are looking at the future of joint finance—of finance passing from the Department of Health to the Department of the Environment—and we shall bring to the House in due course our proposals for ensuring adequate funding for such patients.

Oral Answers to Questions — PRIME MINISTER

Engagements

Mr. Andrew Smih: To ask the Prime Minister if she will list her official engagements for Tuesday 1 May.

The Prime Minister (Mrs. Margaret Thatcher): This morning I had meetings with ministerial colleagues and others. In addition to my duties in the House, I shall be having further meetings later today.

Mr. Smith: Does the Prime Minister accept responsibility for the chaos and confusion at the heart of Government over the poll tax? Does not she owe it to the House and the people before they vote on Thursday to give a straight answer to a straight question? What, precisely, is she going to do about the poll tax?

The Prime Minister: Had the hon. Gentleman read he Official Report of the debate we had on that subject last week, he would have known the answer. We are looking to see whether any adjustments need to be made to the community charge for next year. Some of those were


indicated in the debate, and there is no surprise about it. When one goes from a rate tax to a community charge, adjustments will, of course, need to be made, and we are looking to see which ones need to be made for next year—[Interruption.] If there is any confusion or any high rates, that is in the minds of Labour local authorities. High community charges are due to local Labour councils. Most councils have got out their charges with the rebates and the traditional relief included in them.

Mr. Wood: To ask the Prime Minister if she will list her official engagements for Tuesday 1 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Mr. Wood: Does my right hon. Friend agree that it would be wrong for a local authority to cave in to threats of a politically motivated strike, particularly to secure the reinstatement of a leading member of Class War who hailed the Trafalgar square rioters as heroes?

The Prime Minister: Yes, I agree with my hon. Friend. I understand that Hackney suspended a person who hailed the Trafalgar square rioters as heroes, that the National and Local Government Officers Association threatened to go on strike and that Hackney then caved in. That tells us a lot about the people whom Hackney employs, a lot about NALGO and a lot about what life would be like under Labour.

Mr. Kinnock: Will the Prime Minister tell us now, is she or is she not going to introduce legislation to change the poll tax in this Session of Parliament?

The Prime Minister: When we have a statement to make we shall make it—[Interruption.]—and it will be far more detailed and thorough than any statement we hear from the right hon. Gentleman about roof tax.

Mr. Kinnock: Does the Prime Minister recall telling me just a few short weeks ago that she thought:
The community charge will he very popular?"—[Official Report, 22 March 1990; Vol. 169, c. 1231.]
Does she still believe that, and if she does, why is she sending her Ministers off in every direction, desperately searching for an escape route from the poll tax?

The Prime Minister: The community charge is a much fairer charge than rates—[Interruption.]

Mr. Speaker: Order. The Prime Minister.

The Prime Minister: —and a far fairer charge than the alternative roof tax. I notice that when the right hon. Gentleman gave an interview to The Independent on 21 April, it stated that Mr. Kinnock—[Interruption.]

Mr. Speaker: Order. The Prime Minister was asked a question. She must be given a chance to answer.

The Prime Minister: It stated:
Mr. Kinnock then gave a strong indication of his own thinking. He said 'the tax base for rates was imputed rents and that's one thing we can take into account now and bung into the computer.'
Does not he know the old computer saying, "Garbage in, garbage out"?

Mr. Kinnock: Cannot the Prime Minister understand what just about everybody in the country now understands

—that the poll tax will never be fair? It cannot be amended; it must be got rid of, even if that means that the Prime Minister goes down with her own flagship.

The Prime Minister: Cannot the right hon. Gentleman understand that domestic rates have been abolished; that they were a most unfair tax; and that the enemy is not the community charge, but the high-spending Labour councils?

Miss Emma Nicholson: Does my right hon. Friend agree that as only 19 million people paid the rates and 36 million people will now pay towards community services, the community charge is already infinitely fairer for over half the adult population?

The Prime Minister: Yes, my hon. Friend is correct. I noticed that in a recent poll over 70 per cent. of people thought that everyone should make some contribution to local authority spending. That is precisely what the community charge does, with more generous rebates than have ever been given before and with generous rebates for transitional relief. It is a much fairer tax than either the rates or the roof tax.

Dr. Owen: Is banding of the poll tax one of the adjustments that the Prime Minister has in mind, so that people can pay on the basis of their ability to pay, or is the Prime Minister opposed to that in principle? Or are there practical arguments, in which case perhaps she will enumerate them to us?

The Prime Minister: Those who cannot afford to pay get generous community charge rebates—far more generous than ever before. Some 9 million people will benefit from them. Those who have a sharp difference between the old rates and the community charge are eligible for transitional relief. That applies to some 7 million people. The people who do not get sufficient transitional relief live in the areas of high-spending labour councils, which care nought for their citizens but are more anxious to dig their hands deeply into their citizens' pockets. People who are better off pay far more to local services because the taxpayer is the greatest contributor to local authority spending. The top 10 per cent. of income earners pay 40 per cent. of the income tax yield and therefore pay more for local services than the people in the bottom 10 per cent.

Dame Peggy Fenner: To ask the Prime Minister if she will list her official engagements for Tuesday 1 May.

The Prime Minister: I refer my hon. Friend to the reply that I gave some moments ago.

Dame Peggy Fenner: During her busy day, will my right hon. Friend spare a moment to commend Medway city council on setting the lowest community charge in Kent? Will she list the five local authorities that have the worst education record, the largest number of empty council houses and the highest rent arrears?

The Prime Minister: I gladly pay—[Interruption.]

Mr. Speaker: Order. The Prime Minister has been asked a question.

The Prime Minister: I gladly pay—[Laughter.]

Mr. Speaker: Order. This kind of hilarity is very unseemly.

The Prime Minister: I gladly pay tribute to the eficient Conservative authority in Medway.
With regard to my hon. Friend's question about the five worst education authorities and so on, I am sure that the House is avidly waiting to hear my reply. The five councils with the worst education results are Knowsley—[HON. MEMBERS: "Labour."]; Waltham Forest—[HON. MEMBERS: "Labour."]; Barking—[HON. MEMBERS: "Labour."]; Newham—[HON. MEMBERS: "Labour."]; and Sandwell—[HON. MEMBERS: "Labour."].
The five authorities which have most empty council houses are Manchester—[HON. MEMBERS: "Labour."]; Liverpool—[HON. MEMBERS: "Labour."]; Sheffield—[HON. MEMBERS: "Labour."]; Salford—[HON. MEMBERS: "Labour."]; and Birmingham—[HON. MEMBERS: "Labour."]. Between them, those Labour-controlled authorities have more than 20,000 empty houses.
The five authorities with the highest rent arrears are Southwark—[HON. MEMBERS: "Labour."]; Lambeth—[HON. MEMBERS: "Labour."]; Liverpool—[HON. MEMBERS: "Labour."]; Brent—[HON. MEMBERS: "Labour."]; and Islington—[HON. MEMBERS: "Labour."]. Between them, those authorities are owed £86 million in uncollected rents.

Mr. Cummings: To ask the Prime Minister if she will list her official engagements for Tuesday 1 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Cummings: Is the Prime Minister aware of the many thousands of people in the United Kingdom who have been discriminated against because of a hostile interpretation of rules governing concessionary television licences for the elderly and the disabled? Although they live in identical circumstances, because of the regulations they are being denied what is rightfully theirs. In the twilight of the Prime Minister's premiership, will she now find it within her heart to instruct her Ministers to give to retired people that which is equal and just?

The Prime Minister: I am not aware of any discrimination in interpreting the regulations. Interpreting

the regulations is a matter for the Department concerned and I am sure that if people are entitled to receive a concessionary licence they will do so.

Mr. Harry Greenway: Is my right hon. Friend aware that 6,000 people in Ealing have been sent bills for the full community charge, regardless of their rebate applications? Some of those people are pensioners and students who are entitled to pay only one fifth—£87—but instead are being required to pay £435 by Ealing's Labour council, which will not process their rebate applications until after the local elections next Thursday. Is not that another wicked Labour con trick?

The Prime Minister: I agree with my hon. Friend. Most local authorities have been thoughtful enough of their residents to deduct the community charge relief and the transitional relief from the bills, so that they do not raise needless fears. That is naturally good administration. If there are any who have not done it, it is bad administration and demonstrates sheer lack of consideration for their own citizens.

Mr. Canavan: To ask the Prime Minister if she will list her official engagements for Tuesday 1 May.

The Prime Minister: I refer the hon. Gentleman to the reply that I gave some moments ago.

Mr. Canavan: Does the Prime Minister recall those heady days when she described the poll tax as her flagship? Now that Thursday's election torpedo is fast approaching, despite the captain's apparent order to change course, does she recall the fate of another flagship, the Belgrano?

The Prime Minister: The hon. Gentleman could have done rather better than that.
As regards the community charge in Scotland, where it has operated for a considerable time, far more councils are now either holding the charge or reducing it. Accountability in Scotland is at last beginning to work, as this year councils know that they cannot blame increases on anyone but themselves.

RAF Shackleton (Crash)

Mr. Allan Rogers (Rhondda) (by private notice): To ask the Secretary of State for Defence if he will make a statement on the crash of the RAF Shackleton in the Outer Hebrides.

Mr. A. J. Beith: On a point of order, Mr. Speaker.

Mr. Speaker: I will take points of order after the statements in the usual place.

Mr. Beith: My point of order arises out of Prime Minister's questions.

Mr. Speaker: I know. The hon. Gentleman knows that I take points of order in their proper place, after the statements.

Mr. Beith: My point of order arises out of Prime Minister's questions.

Mr. Speaker: I know. I repeat to the hon. Gentleman that I take points of order in their proper place, after the statements.

The Minister of State for the Armed Forces (Mr. Archibald Hamilton): It is with much regret——

Mr. Beith: rose——

Mr. Speaker: Order. The hon. Gentleman is a very senior Member of the House. He knows that I take points of order in their proper place, after the statements.

Mr. Beith: My point of order arises out of Prime Minister's questions.

Mr. Speaker: I know. I repeat to the hon. Member, who has been here as long as I have, that I take points of order in their proper place, after the statements.

Mr. Beith: rose——

Mr. Speaker: Order.

Mr. Hamilton: It is with much regret that I have to confirm to the House——

Mr. Beith: rose——

Mr. Speaker: Order. I do not know whether the hon. Member can hear what I am saying to him. I am saying that I take points of order in their proper place after the statements—and that I will certainly do—and not now. We are still in the middle of Question Time. This is a private notice question which I have granted.

Mr. Beith: rose——

Mr. Speaker: I must now order the hon. Member to sit down.

Mr. Hamilton: It is with much regret that I have to confirm to the House that an RAF Shackleton airborne early warning aircraft based at RAF Lossiemouth, crashed on a hillside near Northton on the isle of Harris in the Outer Hebrides yesterday afternoon around 12.30 pm. Tragically, all 10 RAF personnel on board the aircraft

were killed. I am sure that the House will join me in extending our deepest sympathy to the families of those concerned.
A board of inquiry has been convened. As the House will be aware, until the board's investigations are complete it would be inappropriate to speculate about the causes of the accident.

Mr. Rogers: On behalf of my right hon. and hon. Friends, I join the Government in extending to the families of the airmen who were killed our most sincere condolences and sympathy.
I would also like to place on record our tremendous regard for the aircrews of No. 8 squadron who have to fly the Shackletons, often in extreme conditions, and also for the groundcrews of the squadron who have the incredibly difficult task of keeping these 40-year-old aircraft in service. The task has been made extremely difficult in recent years because of the reduction of operational Shackletons from 11 to the current six. During this time, planes which have gone out of commission have been cannibalised to keep the rest in the air, which is a significant achievement.
The provision of early warning planes has had a sorry history in this country——

Hon. Members: What is the question?

Mr. Speaker: This is a private notice question, not a statement.

Mr. Rogers: We find it difficult to understand why the Shackleton seems to have had no upgrading in recent times. Apart from the many questions relating to the condition of the aircraft there are questions peculiar to this crash that need to be answered.
One matter of great concern is the role that the aircraft was playing at the time of the crash—[Interruption.] We are investigating a crash in which 10 aircrew were killed.
I understand that the RAF spokesman said that the Shackleton was participating in a missile-firing exercise, but he went on to say in the same statement that no missiles had been fired for at least an hour and a half before the plane crashed. If the plane went on to do flight training, as we were told in the statement, perhaps the Minister will tell us why it was flying at 700 ft when the normal operational mode is 6,000 to 8,000 ft, levels at which the plane is not equipped to fly. It has no terrain-following radar or all-weather radar—it has only the Doppler radar which is required for its functional role.
Why was no warning given to the aircraft by the air defence radar, which is only 20 miles away on the mainland and which was acting as an air control station during Exercise Elder Forest?
The Opposition have drawn to the attention of the House the fact that the cuts of recent years have led to a fall in the operational efficiency of the RAF. It is because of such cuts that tragedies like this occur.

Mr. Hamilton: The hon. Gentleman referred to cuts. I remind him that one or two of these aircraft at a time are operational, out of a fleet that was six, so there is no question of putting lives at risk when flying these aircraft. They have kept up the high standards of maintenance that we have come to expect from the RAF, particularly during peace time, and there is no question of anyone having been put in danger.
The board of inquiry has started its investigations and it would be wrong to pre-empt their outcome. It is up to the board to decide what happened.
I wish to put the hon. Gentleman straight on one matter. The aircraft was not participating at this stage in the exercise that was taking place at the time. That had finished some hour or so before, and the aircraft was 60 miles away from the training area and was on a training flight.

Sir Hector Monro: I join all hon. Members in expressing my deepest sympathy to the relatives of those killed in this tragic accident. As one who is closely involved with RAF Lossiemouth, may I emphasise the exceptional record of that station and of No. 8 squadron in maritime reconaissance and air-sea rescue work?
I share the Minister's view that we should not speculate on the causes of the accident before we hear from the board of inquiry. Does he agree that no Royal Air Force aircraft of whatever age ever flies unless it is fully serviceable and airworthy?

Mr. Hamilton: I am grateful for my hon. Friend's remarks and for his experience in these matters. He is absolutely right to say that we have had an exceptional record with these aircraft. The last one that crashed was in 1968, and it was a maritime patrol version of this aircraft. In 1972 the aircraft were given strengthened air frames and were updated for the airborne early-warning system, and none of these updated aircraft had crashed until this regrettable tragedy.

Mrs. Margaret Ewing: As the local Member of Parliament for Lossiemouth, I thank the Minister and all other hon. Members who have expressed their deep sympathy to the people of Lossiemouth and the men at the base. I left Lossiemouth only this morning, and it was a numbed and stunned community. It has not been a stranger to tragedies in other aspects of its life. At a time like this, our thoughts and prayers must surely be with the families of the bereaved, some of whom are known to me personally.
May I ask that there be no further idle speculation about the possible causes of the tragedy? As the inquiry proceeds, will the Minister ensure that the privacy of the families in Lossiemouth and the surrounding areas will be fully observed, and that all action is taken to expedite any practical matters which may help the bereaved?

Mr. Hamilton: I can, of course, give the hon. Lady that undertaking. I remind the House that the board of inquiry is sitting. If it comes up with prima facie evidence of technical faults or something to do with the structure of the aircraft which would cause disquiet, the fleet would be grounded at once.

Mr. Bill Walker: Does my hon. Friend agree that when accidents occur, personnel at Royal Air Force stations are always shocked and their thoughts are with the dependants of those who died? Does he further agree that the Shackleton aircraft has a remarkable safety record and that Royal Air Force pilots and aircrew sign only for aircraft which have been passed as fit and fully operational, and that under no circumstances do RAF aircrew take into the air aircraft that do not meet those criteria? Speculation should therefore not be allowed at this time.

Mr. Hamilton: I am grateful to my hon. Friend for those remarks. It is certainly true that the RAF maintains the highest possible standards and there is no question here of those standards having been in any way lowered.

Mr. Calum Macdonald: As the Member for the area in which the accident occurred, I add my condolences to the relatives of those who were killed. The whole community in the islands feels very deeply for the relatives and colleagues of those who died. Will the Minister join me in paying tribute to the emergency services at the scene of the accident? Does he agree that they responded in an efficient, prompt and thoroughly professional manner?

Mr. Hamilton: I join in the hon. Gentleman's tribute to the emergency services. It was a tragedy that there was so little that they could do when they arrived on the scene of the crash.

Mr. Jonathan Sayeed: My hon. Friend will have read that, according to the newspapers, the aircraft of No. 8 squadron were grounded following the tragic accident. Will my hon. Friend confirm that that is not the case, despite press speculation, and that the fact that the aircraft are not flying is a mark of respect for the sad loss?

Mr. Hamilton: That is absolutely right. As a mark of respect, the aircraft are not flying today, although there is one standing by in case of emergency. There is no question of the aircraft being grounded unless the board of inquiry comes up with something that causes it disquiet, in which case it would ground them. At the moment, we have no evidence that the accident was caused by a technical fault.

Mr. James Wallace: May I assure the Minister of the sympathy of my right hon and hon. Friends for the families and service colleagues of the bereaved? He has already confirmed that it is too early to speculate on the cause of the accident. It is distasteful to try to make political capital out of speculation. It is a tribute to the Shackletons that they are still in service after so many years, carrying out the role assigned to them. Can the Minister give us any indication of when the AWACS replacements will come into operation?

Mr. Hamilton: We are not happy with the capability of the Shackleton as an airborne early-warning aircraft. We are happy about its operations capability and the safety of the crew, but its ability as an airborne early-warning system is not good and we should like to replace it as soon as we can. The AWACS will be coming in the spring of next year. We hope that the whole order for seven aircraft will be completed within about 12 months from then.

Mr. Derek Conway: Will my hon. Friend undertake to take a personal interest in the welfare of those who are bereaved, bearing in mind that in the case of my constituent who was widowed by an RAF helicopter crash it took nearly two years to reach a settlement? Such a delay is too long and must never be allowed to occur again.

Mr. Hamilton: I take my hon. Friend's point that two years seems a very long time. We shall certainly do all that we can to make sure that settlements for widows are speeded up.

Mr. Sydney Bidwell: As a member of the Select Committee on Transport, which has gone into the whole question of RAF and civil flying, may I ask the Minister to ensure that the inquiry removes any suspicion that flying in the normal flight paths could endanger the safety of the public?

Mr. Hamilton: We are always mindful of the need to ensure that air safety is kept at the highest possible standard, but we should not anticipate the outcome of the inquiry. We do not know the cause of the accident. We must wait until the board of inquiry has reported and we have a clearer idea of what happened.

Mr. Geoffrey Dickens: As we join together in mourning the loss of the flight crew of No. 8 squadron, will the Minister confirm that it matters not the age of an aircraft so long as during maintenance no structural fatigue or inter-crystalline corrosion is found? Does he also agree that an aircraft's age should not be predominantly in the minds of people when they make certain assumptions?

Mr. Hamilton: I totally sympathise with my hon. Friend about that. We are aware of the stress and fatigue problems in terms of the air frames. That is why they are carefully checked on aircraft of that age, and it is because they are so carefully checked that we are happy that it is a safe aircraft when in the air.

European Council (Dublin)

The Prime Minister (Mrs. Margaret Thatcher): With permission, Mr. Speaker, I shall make a statement on the informal meeting of the European Council in Dublin on 28 April, which I attended with my right hon. Friend the Foreign Secretary. The text of the Council's conclusions has been placed in the Library of the House.
The Council was convened for two main purposes: to consider the consequences for the European Community of German unification; and to discuss the way ahead in the Community's relations with eastern Europe. We made useful progress on both issues.
The Council agreed clear guidelines for the detailed discussions which will be necessary in order to incorporate East Germany into the Community, taking account of the interests of other member states. Those discussions will cover trade, agriculture, fisheries, the environment and many other issues. It will be for the Commission to make proposals for any transitional arrangements which are necessary. I emphasised that derogations from Community law and practice should be brief; and that we must avoid unfair competition and disruption to trade. Those points are well understood by the Federal German Government.
In the period before unification, East Germany will have access to normal Community funds which have been set up to help eastern Europe: and will also be able to benefit from full access to the European investment bank. Chancellor Kohl indicated that the federal republic is not seeking any special fund for Community financial assistance to East Germany.
A very welcome feature of the discussion on German unification was the strong support expressed by Heads of Government for the North Atlantic Treaty Organisation and for the view that a United Germany should be a member of NATO. That corresponds very much with our own views and those of the United States.
As regards eastern Europe, the Council reached two main conclusions: first, that assistance from the Organisation for Economic Co-operation and Development group of 24 countries ought to be extended to East Germany, Czechoslovakia, Yugoslavia, Bulgaria and Romania, as well as to Poland and Hungary as at present; and, second, that, as soon as possible, we should negotiate association agreements between the European Community and those eastern European countries which are making decisive progress to market economies and genuine democracy. That responds to a British initiative before the Strasbourg European Council last December and we very much welcome the decision.
The Council also provided an opportunity to take forward discussion on other items of European Community business, in particular political union. That has never been defined: and it was clear from our discussion that there are widely differing views on what it covers. I pointed out that the term political union raises anxieties among many people about a loss of national identity, national sovereignty and national institutions. I suggested that we should all make clear that political union does not mean, for example, giving up our separate Heads of State, or our national Parliaments, or our legal or electoral systems, or our defence through NATO.
I also proposed that we indicate that we do not intend to alter the role of the Council of Ministers as the Community's main decision-making body, with Ministers each accountable to their national Parliaments; and that we are opposed to centralising powers in Europe when decisions are better taken by national Parliaments and Governments. If we could agree that none of those things would happen as a result of political union, we could show that many of the fears about it were groundless.
I suggested that the positive way forward lay instead through ever closer co-operation among member states and reform of the Community's existing institutions to make them more effective and more efficient. We shall ourselves have constructive ideas to put forward for that.
I found a number of these views shared by other Heads of Government. Indeed our discussions during the day, particularly on matters concerned with foreign affairs and defence, showed very clearly that in practice we all continue to think in terms of keeping certain key issues as matters for national decision.
We therefore agreed to instruct our Foreign Ministers to analyse more thoroughly what political union should cover and report back to the European Council at the end of June, with a view to a decision then on the holding of an intergovernmental conference. Such a conference can, of course, be convened by a simple majority of member states, but its decisions have to be reached by unanimity and approved by national Parliaments.
I will summarise briefly the other main issues that we discussed. First, the Council confirmed the commitment to complete the European single market by 1992.
Second, we agreed to intensify preparations for the intergovernmental conference on economic and monetary union, which will start in December this year. We also set an objective of finishing the work of that conference in time to permit ratification of the results by the end of 1992. It is rather early to say at this stage how feasible such a target is. The results of that conference would have to come before the House, which has already expressed its views on stages 2 and 3 of the Delors plan.
Third, we confirmed our commitment to a successful conclusion to the Uruguay round of trade negotiations in the GATT.
Fourth, we repeated our desire to strengthen relations with the EFTA nations and extend the single market to them.
Fifth, we asked our officials to make proposals, in time for the next European Council, for improving the effectiveness of the Community's co-operation against drug trafficking and drug abuse.
Foreign Ministers also discussed a number of international issues. They agreed a statement on Cyprus, as well as guidelines for our approach to the CSCE summit, which we expect will be held later this year. Those texts are annexed to the Council's conclusions.
The additional meeting of the European Council set the way ahead for the Community on several important issues. It was also an opportunity to put clearly on record Britain's views on what political union should and should not mean, and not least our determination to defend the powers of this House.

Mr. Neil Kinnock: I thank the Prime Minister for that statement. I welcome several aspects of the Dublin communique agreed by the Heads of Governments, in particular the improved co-ordination of action against

drug trafficking, the statement on Cyprus—which will have resonance for many hon. Members—the new arrangements for dialogue with the United States of America, and the undertakings given by the German Government on the process of unification.
While we welcome the Council's conclusion relating to support for the economies of eastern Europe, and want that to be extended, will the Prime Minister give an undertaking that any commitment by Britain in that direction will not result in a reduction in the resources that we allocate to Third world countries, whose needs remain as great as ever?
I wish to raise two issues relating to the Community. First, has the Prime Minister made any progress in efforts to locate the European Bank for Reconstruction and Development in London, which is where it should be located? Secondly, in the light of the Chancellor's prediction yesterday on the rate of inflation, can the right hon. Lady update the House on the timing of Britain's entry into the exchange rate mechanism of the European monetary system?
The Dublin summit obviously reflected the process of events immediately before it. Was the Prime Minister personally consulted by Chancellor Kohl or President Mitterrand before they sent their letter to Lithuania last week? If so, why was not Britain associated with that constructive initiative? Was she personally consulted by either Chancellor Kohl or President Mitterrand before their letter of 19 April to the Community Heads of Government, setting out their proposals to convene an intergovernmental conference on European political union?
Has it occurred to the Prime Minister that, when Chancellor Kohl and President Mitterrand are taking important and significant initiatives and Britain is not directly involved, it is because the right hon. Lady has put our country on the sidelines and left others to determine the course and the nature of the new Europe?
We are just six weeks away from a Community summit which, contrary to the Prime Minister's professed wishes, will now consider proposals for an intergovernmental conference on political union. Is not it obvious that the Prime Minister has no positive strategy for that summit? Do not those events make it crystal clear that, because of the way in which the Prime Minister has conducted affairs, she has been pushed to the fringes from which she can exercise only marginal influence on events? Is not it plain that the Prime Minister has made herself merely a spectator, the lame duck of the Community, and she has only herself to blame?

The Prime Minister: I shall go through the points which the right hon. Gentleman has made. Help for the economies of eastern Europe should not diminish help for the Third world. That is very much in the minds of all our colleagues and we do not intend that it should diminish help for the Third world. Help for eastern Europe has been provided out of a special fund.
With regard to the new European bank, we have applied to have it in London. Of course, it is not a Community bank; it is much wider than that, so we have also been in touch with the United States and others who will contribute to it. Many people feel that it should be in London. There is also a battle going on, if I might refer to


it in that way, about who should be president or governor of that bank. I suspect that the two issues will be settled together.
With regard to inflation, I have nothing to add to the Madrid conclusions about when we shall join the exchange rate mechanism. As the right hon. Gentleman knows, some countries have yet to have full freedom of capital movement and to remove their foreign exchange controls. It is expected that Italy will do that before the beginning of July. There is still not full freedom of financial movement, but the main thing is to get inflation down now before we can join the exchange rate mechanism.
The statement on Lithuania issued by Chancellor Kohl and President Mitterrand was done at one of their bilateral meetings. May I point out that, when all the Foreign Ministers met the week before, they jointly issued a communiqué on our approach to Lithuania under the terms of the political co-operation treaty which requires us all to consult one another before we make statements, if possible, so the Foreign Ministers have made a joint statement.
Chancellor Kohl and President Mitterrand did not consult others before they issued their statement, although it was inside the political co-operation treaty that they should have done so. I am not surprised or disappointed that they did not. The fact that we agree on political co-operation does not mean that we relinquish our sovereign right, unilaterally or bilaterally, to make our own statements. I thought that it was rather on my side that they were giving practical evidence that they did not intend to give up their sovereignty unilaterally or bilaterally, although they were talking about political union without any definition whatsoever. The document that they put before the Council on political union talked a great deal about political union without defining it. Certainly in the first stage they meant increasing the efficiency of Community institutions and increased political, economic and monetary union. It is difficult to define political union by reference to other unions by repetition of the word. They also meant increasing co-operation on security matters, but, of course, one has to remember that each of the nations of the Community takes a very different view. Many of us are fully under NATO; some are not militarily integrated into NATO and some are neutral. So it did not seem a very good example of political union.
On the right hon. Gentleman's final point, may I remind him that Britain was one of the principal political players in that informal session. Many people supported what I said and we got our own way in asking Foreign Ministers to analyse what was meant by political union.

Mr. David Howell: Does my right hon. Friend agree that that she was absolutely right at Dublin to seek a clearer definition of European political union? Does she accept that there is, indeed, a strong case for political progress and development in Europe but that it should be constitutionally based on strengthening the role of national parliaments and not on bureaucratic centralism or simply increasing the power of central institutions without proper accountability? Does she agree that that is an excellent case which can be put well by the British, that she has made an excellent start in putting it, and that she should continue to do so with great vigour?

The Prime Minister: I am grateful to my right hon. Friend. I agree wholeheartedly with him. There has been a tendency to increase the central powers of the Commission. That is going the wrong way. The Commission needs some increase in powers in one respect—a quasi judicial respect—it needs powers to enforce some of the directives. In other respects we need a greater distribution of powers for decisions. Those should be taken through the national Parliaments and the Council of Ministers. We have particular proposals to put forward about strengthening the Court of Auditors. The Commission's accountability on finance could be greatly improved.

Mr. James Molyneaux: Following our exchanges in the House last Thursday, is the Prime Minister aware that her strong, clear statements in defence of parliamentary sovereignty accurately reflect the views of people not only in Northern Ireland but throughout the United Kingdom?

The Prime Minister: I am grateful to the right hon. Gentleman. I believe that it reflects our views. We are by far the oldest Parliament and we probably report far more often to our Parliament about everything that goes on in the Community than do many other Heads of Government. The fact that at the outset other Heads of Government were not prepared to put any limitation on political union was alarming, but it could mean that they go step by step towards relinquishing the things which are absolutely vital to our parliamentary traditions.

Mr. William Cash: Does my right hon. Friend agree that, far from being isolationist or lacking in influence in Europe, the outcome of the Dublin summit proves that we are leading Europe from within and, furthermore, we are doing so on the basis of our insistence on real parliamentary democracy and asking simple questions of those in authority?

The Prime Minister: I agree with my hon. Friend. It is absolutely wrong that people should use phrases without defining them. It is our task as Heads of Government to define them and set strict limits on them. I could not possibly come back to the House without doing precisely that. It took a good deal to do that at the informal summit, but it is now being done. In precisely the same way, and by being isolated at first but obtaining a reasonable settlement, we obtained a rebate of £1·7 billion this year. If we had not taken that path at previous summits, we should be paying £1·7 billion more to the Community than we pay now.

Sir Russell Johnston: Is the Prime Minister aware that many people in all parties throughout Britain do not necessarily believe that it is in Britain's interest that she gets her own way? Is the right hon. Lady aware that many people feel that here attitude in Dublin was negative and insular? Does she accept that many people believe that the development of a federal Europe, far from being a threat, is the best protection of our pride, realistic sovereignty and economic well-being? As for our electoral system, the sooner that we get rid of that wretched and unfair system, the better.

The Prime Minister: It is not my way that one achieves. It is the way that the Government feel is best for Britain. The Government have done well for Britain in finance,


agriculture, trade, competition and so on. In particular, we have obtained a realistic budget and seeing that we had a realistic contribution to make. I noted what the hon. Gentleman said. Clearly he does not mind losing little by little, or even faster, the powers of the House to a federal Europe. I disagree with him. We should stop any more centralisation and make certain that the future of the Community is implementation of measures through the national Parliaments.

Rev. Ian Paisley: As the President of the European Commission has made it clear that he envisages European political union in a structure in which the majority of decisions that affect the people of this nation will be taken in Brussels, and as Chancellor Kohl made it clear at Dublin after the summit that he saw increasing power being vested in the non-elected Commission members, will the Prime Minister give the House today a categorical assurance that if the conference moves to add to or change the treaty of Rome she will give this nation the opportunity by referendum to say whether it will go on that course?

The Prime Minister: We shall receive the report of the Foreign Ministers at the next meeting in Dublin in June when doubtless they will give a number of proposals about the way forward. I believe that an intergovernmental conference will then be set up because most people want it and that could be done by a simple majority vote. We shall have our own proposals about making institutions work better. We are very much aware of the enormous powers that are vested in the non-elected Commission. We do not believe that those powers should be increased. There would, of course, be a tremendous attempt to increase them under monetary union and economic union, and that is where the main battles will come. Everything, fortunately, will have to come back to this House for approval. One remembers that the whole time when one is negotiating and believes that one has the feel of this House that it does not wish to yield up any more of its sovereignty than it has already.

Mr. Peter Shore: Although the communiqué rightly welcomes the unification of Germany under a European roof, is not it a pity that the communiqué was not similarly forthcoming about the now independent countries of eastern Europe? Would not it be a good thing if they, too, were brought under a European roof? Is not it a fact that the whole priorities of the Community are distorted and that the achievement of a wider Europe should be the first and central aim? Would not an enlarged Europe be a far more effective counterweight to over-arching German economic power than these half-baked proposals for political and monetary union in western Europe?

The Prime Minister: The right hon. Gentleman knows that I share his view about the proposals on monetary and economic union, and the House made its views clear in a debate. With regard to what I call the wider Europe, I am very conscious—and I made a speech about it—that Europe and European civilisation were created long before the treaty of Rome and the European Community. I am, therefore, very much aware that eastern Europe is also a part of Europe.
I do not think that eastern Europe could come under the European roof straight away. East Germany is an

exceptional case, because it is being incorporated into Germany. It is lucky to be able to plug straight into a system of law, a market economy, a whole banking system, a financial system and a system of company law, whereas it is a long time since the other countries in eastern Europe knew all the structure of a market economy and they could not come in without having gone through the process of getting to that structure and full democracy. That is why we have taken the present route with them. First, we are creating a trade agreement—and many trade agreements have been concluded, as the right hon. Gentleman knows—and, secondly, we are creating special association agreements with them which will have certain common features and some clauses tailored to the particular circumstances. Some of us will think beyond that. We shall think of full membership and believe that that is the right and better way for Europe to go. That could not be done before they had a proper democracy and a market economy.

Mr. Churchill: Will my right hon. Friend accept that she spoke for the people of Britain when she insisted that the meaning of European unity be spelt out in detail? Surely it is of the essence that the future position of our sovereign, of our national government and indeed of these historic Houses of Parliament should be clarified and accepted as essential realities in any move towards a wider European unity.

The Prime Minister: I am grateful to my hon. Friend. I think that what one has noticed over the past 10 years is that the rhetoric and the practice often vary very much in countries in the European Community. We must define our terms, or we shall have artificial debates and arouse needless fears. [Interruption.] No, I am the person who does the analysis. I entirely agree with what my hon. Friend says.

Mr. Merlyn Rees: Did I hear correctly when I heard the Prime Minister say that defence was among the matters discussed? Surely that is not normally a matter for the EEC. I should find it even more surprising if the Taoiseach, who is the President and whose country is neutral and deliberately has nothing to do with NATO—and that is its business—chaired a meeting at which defence was discussed.

The Prime Minister: We discussed the importance of East Germany when incorporated into a unified Germany, with the unified Germany as a whole being in NATO. We did not, of course, go into detail, and we could not possibly have done so. France is not militarily integrated into NATO, but is every bit as concerned as the rest of us t hat a unified Germany should be in NATO. As the right hon. Gentleman pointed out, the Taoiseach is neutral.
I again refer to what Chancellor Kohl and President Mitterrand said in their letter to the Community about political union: they suggested that one of the things that should be discussed was security. One pointed out that we were not the organisation that was the decisive organisation on defence matters, and I did not see how that could possibly be a definition of political unity.

Mr. Ian Stewart: My right hon. Friend has rightly expressed herself cautious about extending the powers of the Commission, which is a non-elected body. In any future discusson of political plans for the European Community, will she be wary of


increasing the powers of the European Parliament in relation to finance? Over the years, the Parliament unfortunately seems to have been more interested in increasing public expenditure in the Community—often in areas that overlap public expenditure in individual member states—than in protecting the interests of taxpayers in Britain and in the other member states.

The Prime Minister: I agree with my right hon. Friend. We should be wary of further increasing the powers of the European Parliament, particularly over finance. The Parliament often wants to spend more, but the responsibility for raising the money lies elsewhere. I know that those powers have been increased both in the lifetime of the previous Labour Government and during the lifetime of this Government. I agree with my hon. Friend: I think that we have gone far enough.

Mr. Tony Benn: Is the Prime Minister aware that, following the historic events of the past 12 months, it is quite proper that we should be having an open debate about the future of Europe but that the debate is not between nationalists and federalists but among a much wider range of people than that? Many of them, like me, would like to see a wider Europe, with nations of different traditions harmonising by consent and cooperating politically and economically without the domination of a central body. That view must be allowed to appear upon the agenda. Those who have rejected Gospan, which is not elected, will similarly reject the Commission, which is not elected or the Bundesbank, which is not elected. I hope that the Prime Minister will agree that before the June meeting the House can discuss the matter fully.
I have one further question, about the role of the House of Commons. As all laws emanating from the Council of Ministers—a legislative body—are made in secret by British Ministers using the Crown prerogative of treaty making, the House of Commons has lost all its powers, and accountability has simply become a vote of confidence in the Government of the day. It is not just European political union but the present arrangements and the 1992 arrangements that have reduced the House to municipal impotence. We are spectators of what is decided by Ministers in our name, without any authority, either in advance or afterwards, for the decisions that they have reached. Can that also be discussed?

The Prime Minister: As the right hon. Gentleman knows, when those draft directives are being negotiated, the negotiations are long and detailed. The right hon. Gentleman is right in that the Commission has the only right of initiation of draft directives. Draft directives may be withdrawn and others introduced. Separate countries cannot amend such directives. It might take four, five, six or even seven years for Ministers to approve a draft directive because, as a result of that directive being taken back and changed, it is very different. Where it is vital, such directives must be agreed by unanimity, on other occasions by majority. We would propose that the Commission should not have the only power of initiation. Ministers should be able to amend the draft directives.
The more important point raised by the right hon. Member related to the Community's wider aspects. It was started as the European Economic Community and we

had to give up all powers directly over our own agriculture and that is now negotiated in the Community and a similar process applies to trade. Therefore, we cannot appear at the Uruguay round as a separate country. We negotiate through the European Community and the Community has an economic character in which it must have fair competition and try to get rid of heavy subsidies. We cannot discard that, because that is fundamental to the Community.
I would disagree with the suggestion made by the right hon. Member that we should widen the debate. I would have a different solution from that. The Community is the place in which we negotiate on economic matters and perhaps on political matters, because we have political co-operation, but that must be considered. We negotiate defence in NATO, but that is still not enough. That is where the importance of the Helsinki accords and the conference on security and co-operation in Europe come in. That was signed by 35 nations on both sides of the political divide in Europe and that is why many of us want that conference to meet more often, possibly with Foreign Ministers meeting twice a year, so that we achieve that essential discussion between nations of different political characters. We can then see more and discuss more of the problems and perhaps prevent some of them from arising and have a greater understanding of them. However, that is a separate task for the CSCE framework and we hope to meet later this year to consider that further.

Mr. Ian Gow: Did the Council of Ministers agree that it was the duty of every member state at all times and in all circumstances to do its utmost to cleanse Europe of the evil of terrorism? Did my right hon. Friend make it clear to the President of the Council that, as a result of the recent events and decisions of the Supreme Court in Dublin, many hon. Members consider that the Republic has become a safe haven for terrorists and that that is wholly unacceptable to the House?

The Prime Minister: As my hon. Friend knows, I have raised that matter before and have been very forthright about it—just as forthright as my hon. Friend is now. A rule of law matters very much to us and part of that is apprehending those who are suspected of crimes and, if they are guilty, seeing that they are convicted as guilty before properly appointed courts and that the sentence is carried out.
We have been very concerned about terrorism and with the greater freedom of movement of people, particularly across the mainland of Europe and the removal of some internal borders. We have not yet made sufficient provision for catching terrorists or people dealing in drugs or other articles who cross borders. We have raised that matter on many occasions. We are in a special position because we are an island and we can exercise such controls at our ports and airports. However, we do not have a satisfactory way of achieving that more generally.

Mr. Jim Sillars: I welcome German unification. However, given that in international law East Germany as the GDR is a separate state, on what legal basis will East Germany be incorporated into the Community? Will it require the unanimity of the current 12 member states?

The Prime Minister: The hon. Gentleman has used the correct word. It will not be annexed and therefore we do


not have a separate treaty negotiation as we would have if we were taking on a wholly different country. It will come in under article 23 when the GDR becomes incorporated into Germany. Therefore, we are negotiating in a completely different way. We do not have to have unanimity under each facet of negotiation, for example, in agriculture, fisheries, trade, competition and environment, but it will go under the ordinary Community law.
In the meantime, we are aware that many things need to be negotiated, and they are being negotiated in a pre-unification way because the GDR has totally different kinds of farming from that in Europe. It has enormous co-operative farms. Also, it produces a great deal of wheat, barley and potatoes, and of course some of those could come into a Community that already has a surplus and is getting rid of its surplus, and that must be negotiated. It has a fishing fleet twice the size of that of the Federal Republic of Germany and very few waters, and that will have to be negotiated and very carefully indeed. Then, of course, it has many subsidies and a Communist economy at the moment, and we really cannot have goods coming across and undercutting us. All those matters, therefore, are for the Commission to be negotiating at the moment.

Mr. Hugh Dykes: I thank my right hon. Friend the Prime Minister for robustly defending the interests of this country at the European talks, and particularly for committing this country to the thoroughgoing discussions on European political, economic and monetary union, which, of course, in reality will enhance the sovereignty of this country. Does she agree that there is no reason on earth why the proposals and procedures to be adopted should not enhance the sovereignty of this national Parliament, particularly in its developing work with the European Parliament, itself exercising accountability over the European Commission?

The Prime Minister: I am aware of the argument that my hon. Friend uses. It is used frequently, particularly by some of the smaller members of the Community, who say that, because they are part of a bigger organisation, they have influence where they would never have had it before. I think that there are distinct limits as to how much further that view can be taken. For example, we cannot, as I said, negotiate as a separate nation in the Uruguay round.

Mr. Dykes: It does not matter.

The Prime Minister: My hon. Friend says that it does not matter. I should not say that it enhanced our sovereignty—not in any way; it may pool our sovereignty. It could diminish our influence if we were only one country in 12. On the whole, we make our views felt and sometimes we get the right answer because we have the right proposals. I know that that will continue to be so.

Mr. Nigel Spearing: Is the Prime Minister aware that what she said about parliamentary democracy and the powers of this House will receive some assent here and outside, but do not two questions follow? First, is not it high time that the House agreed to the unanimous four-year-old request of the Select Committee on European Legislation that its powers be slightly extended so that it may give full information to the House about matters relating to the EEC and its legislation? Secondly, whatever may have happened in the past, is it now appropriate that all the documents that will be put before the future Council of Ministers, future European

Councils and, indeed, intergovernmental conferences be placed before the House for debate on a substantive motion before Governments commit themselves? If our friends and neighbours in Europe are to take seriously what the Prime Minister and others are saying about parliamentary democracy, surely the answer to both questions must be yes.

The Prime Minister: The hon. Gentleman is aware of my general view that I believe that he and others who have taken a particular interest—indeed, the whole House—should have as much information as possible, first, because of the traditions of the House and, secondly, because some of the decisions that we shall take in the next five years will have a fundamental effect on the future of our children. We wish to do the best for them, but we think that the best is done by a combination of belonging to the European Community and being influential in that, but also of being a very proud nation state, and one of 12 proud nation states. We think that it is better to co-operate in that way than trying to merge more of our sovereignty, as we have done in the past. I shall do my best to look into this matter and see that as much information as possible comes before the House, because that can only enhance the quality of the debate and help Ministers when they are negotiating.

Mr. Jonathan Aitken: Will my right hon. Friend accept congratulations for injecting such a welcome note of British realism into the proceedings arid for asking just the right kind of searching questions on some of the dreams of European political union? Was she surprised this afternoon when the Leader of the Opposition, on the basis of minimal information, apparently committed himself and some of his party to going along with the Franco-German theory of political union, a theory which can only result in a massive shift of power away from this House and contrary to the wishes of the British people?

The Prime Minister: The Leader of the Opposition has ceased to surprise me—[Interruption.]—and perhaps I might ask him to go into these matters rather more closely and in greater detail.

Mr. Harry Ewing: In relation to the important issue of the unification of Germany, may I ask the right hon. Lady to confirm that, when she refers to article 23, she is referring to article 23 of the basic law of the Federal Republic's constitution and that unification will take place under that law? Will she confirm that the proposal is that the five regional areas of East Germany will merely be added to the 11 laender of West Germany and that we shall be faced with a 16-laender Federal Republic of Germany becoming part of the EEC? Is the Prime Minister aware that I am 110 per cent. in favour of that new state being a member of NATO?
Is the right hon. Lady aware that the achievement of the wider European family—if, as we hope, the new Germany becomes a member of NATO—will require confidence-building measures, bearing in mind the attitude of the Soviet Union? Does she accept that if that were not to happen there could be tensions in Europe that, to say the least, would be difficult to handle? Is she convinced. in view of all of that, that sooner rather than later we should have a major debate about the direction in which Europe is travelling?

The Prime Minister: I am grateful to the hon. Gentleman for making the first point. The article 23 to which I referred is article 23 of the constitution of the Federal Republic of Germany, which is so well known that I did not identify it. He described the procedure as I understand it—that East Germany will divide into five laender, that they will be annexed and that they will become one unitary German state.
The hon. Gentleman went on to speak of the wider European fabric, and perhaps one can divide it into three. First, there are the immediate east European countries that were part of the Warsaw pact and which now wish to have association agreements with us, so we shall get closer that way, and they may eventually want to join. Secondly, there are the six EFTA countries with which we are renegotiating a new agreement—again, a wider grouping, and some of them may wish to join. Austria has already applied, and that is another neutral country.
I do not think we can go beyond that, except within the existing framework. When considering the future, I have always thought that we were fortunate in having those three frameworks. We have the European Community, we have NATO for our defence, which locks us in, both sides of the Atlantic—the defence of freedom is both sides of the Atlantic; it locks us into the United States and the United States into us—and we are able to use the Helsinki accords to go across the divide.
There will obviously be much more difficulty in getting a free market economy in eastern European countries, and particularly in the Soviet Union, and the greater the discussions we have with them the better. The framework exists, and I believe that it would be best to use that framework.

Sir John Stokes: Is my right hon. Friend aware that her statement this afternoon and the questions that have followed represent one of the most important events in the life of this Parliament? Is she aware that we are dealing with the fundamentals of our national life, not only for ourselves but for our children and our children's children? Is she further aware that she stands in the line of great Prime Ministers of this country who have stood up for Britain and have had the support of the vast mass of the people? We are fortunate to have my right hon. Friend, rather than the inexperienced Leader of the Opposition representing us abroad.

The Prime Minister: I am grateful to my hon. Friend. It is extremely important that we stay in NATO and that we keep the United States in Europe to ensure both our freedom and our rule of law. It is important that we retain our national identity and our ancient traditions and heritage, which have done so much for the world. It is also important that we play a part in the development of Europe. However, we must remember that the civilisation of Europe, which is now seen the world over, was built up over centuries and that it belongs to more countries than just to the 12. Indeed, it was built up before Europe had any central authority, partly because of the variety within Europe and because there was always another place to go for those who sought more freedom than they found in any particular state.
Therefore, I agree with my hon. Friend and with Opposition Members who have said that this was one of the most important summits. That is why one finds it a

tremendously responsible and exciting job. We are shaping the future for a long time ahead and we shall do so carefully, with full respect for the traditions of this House.

Mr. Ron Leighton: If, contrary to the assurances that were given in the referendum, we were to have economic, monetary and now political union, and if, as Jacques Delors suggested, 80 per cent. of our policy was decided in Brussels and taken from this House, does the Prime Minister have any proposals to reduce the salaries of Members of Parliament by 80 per cent? As the Palace of Westminster would become rather redundant, does the Prime Minister have any plans to privatise it and to link it to the Greater London council building and turn it into a hotel, or perhaps it could be turned into a museum with a variety of artefacts that would remind tourists of the old days when Britain was a self-governing parliamentary democracy?

The Prime Minister: I realise that the hon. Gentleman worked hard at that supplementary question, but he is slightly out of tune with the spirit of the House today. We are all working anxiously for the future of Europe and the wider world and to extend freedom and the rule of law ever wider, along with wider prosperity. However, the hon. Gentleman has touched on something fundamental. There will be fierce debates about economic and monetary union. Those debates will be fierce because from what we have seen of Delors stages 2 and 3, which have been rather general, we do not like or accept the idea of going to a single currency or locked currencies or the idea of a central bank, which would take powers away from this House, as was described in the Delors report. We have already gone some distance because it has been made clear that that organisation would not have as many powers over the general budgetary decisions of this House as Delors set out. That issue will be hotly fought because a number of others want to go much further than we do.
The hon. Member for Newham, South (Mr. Spearing), who earlier spoke about the need for more information, was right to say that we shall need as much information as possible. That issue will be much more fiercely fought at the moment than that of political union, because political union is much further behind and we have stopped it meaning things that we did not want it to mean.

Sir Patrick McNair-Wilson: May I warmly congratulate my right hon. Friend both on her statement this afternoon and on all the ways in which she works for the British interest both in Europe and elsewhere in the world? In her discussions on the exchange rate mechanism, was she aware of the growing unease of many of the member countries about a fixed exchange rate mechanism covering such a broad spectrum when there is so much uncertainty about German monetary union? Is there really a good case for returning to fixed exchange rates after this country's unhappy experience from 1949 to the early 1970s? Therefore, are not we wise in being extremely cautious before we hand over our money supply to a third party?

The Prime Minister: My hon. Friend has put his finger on an important point. It is one thing to join an exchange rate mechanism with certain quite wide margins within which the currency can fluctuate, as has been necessary. We should consider Spain's experience since joining the exchange rate mechanism because that has not been an


easy option for Spain. It would be much more unwise to go to locked exchange rates. Some of us remember the times of fixed exchange rates under the Bretton Woods system when we used to hear in the House details of public expenditure cuts, of how we had to let go a great deal of our reserves, and of high interest rates—all at once. Those problems arose from the fixed Bretton Woods exchange rate system. It was broken, and we should be wary of returning to such a rigid system.

Mr. Giles Radice: In the past, the right hon. Lady has expressed concern about the consequences of German unification. In the circumstances, does she think that it is wise to go on harping—as she does—about national independence, national sovereignty and national identity? Is there not something to recommend the approach of President Mitterrand and Chancellor Kohl, who believe in a common approach that would bind a united Germany more closely to the Community?

The Prime Minister: Again, if I may say so, those are merely words. The Federal Republic is a member, and was a founder member, of the Community. Britain, too, is a member of the Community. We are all bound by the same rules, and we must all agree if we wish to change them. Why should being in the Community bind Germany more firmly that the rest of us? Again, it is a phrase which people are using rather easily.
Naturally, Germany will probably be one of the dominant countries in the Community because she is far larger and very rich. The rest of us would be right to have regard to that. That is one reason why people feel that we should extend the Community. If there is one dominant member in the Community, the other members must have regard to their national identity and to their traditions. Britain's parliamentary traditions go back further than those of any other Community member. Therefore, we have a specific balancing role to play—as we have always had—in Europe.

Sir Michael McNair-Wilson: Does my right hon. Friend agree that mutual self-interest is the best binding agent for the EEC, and that political union could be divisive? We talk about German unity as if it was a matter of fact, but does the Soviet Union still retain some residual powers ahead of a peace treaty?

The Prime Minister: I agree with my hon. Friend. We are in the Community because we believe that membership is in our interests and because we believe that we should co-operate on those things. That will give our children more scope and opportunities than we ever had. That is a good thing.
The Berlin four powers and the two Germanies have yet to decide how to wind up the present arrangements in Berlin. We took the view that we should be wary to ensure that that forum was not used to discuss wider defence matters but should be confined to that purpose. Any residual business to be completed will have regard to our duties—as an old occupying power—towards East Germany. Britain will do that with the greatest possible understanding. The Soviet Union is a member of the Berlin four and we will have to negotiate with it on the question of the peace treaty and German unification, even though many of us think that that is not necessary. However, there is a call for such a settlement, especially one that has regard to the borders of Poland. My hon.

Friend knows that both Germanies have now undertaken to honour the Oder-Neisse line. They say that as separate states. When they are unified they will have a treaty to that effect.

Mr. Eric S. Heffer: The right hon. Lady must be aware that I absolutely oppose and detest everything that she has done in relation to this country. The right hon. Lady is totally wrong when it comes to our internal situation here, but she is not wrong on everything; on odd occasions she can be right. She must also be aware that I used to be a staunch supporter of this country entering the Common Market until I realised the effect that it would have on ordinary people. It was that realisation which determined me to resign as a Labour Minister, because I believed that what the Government were doing at the time was wrong.
I still believe that the ordinary people of this country are not getting a good deal from the Common Market and that it is, therefore, right to ask the questions that the right hon. Lady has asked in regard to political union and what it means, and I believe that my right hon. and hon. Friends on the Opposition Front Bench are being too easily conned on these questions of the European Economic Community.
I believe in a socialist Europe. I want a united socialist Europe. I do not want the type of system which is being proposed at present. So I suggest that we need to be much more serious about this question—at present, some of our people are only too keen to rush into it.
While I disagree, therefore, with everything that the right hon. Lady says in relation to this country—[Laughter.] It is no laughing matter; it concerns the future of our people, and our people mean a lot to me. They may not mean a lot to some people, but I left a Government job because of them. While I disagree with her on everything else, she is right to ask the questions that she is asking.

The Prime Minister: I respect the hon. Gentleman as a sparring partner in domestic politics, and I enjoy sparring with him. I disagree with him and I am sorry that he does not accept that this country has had much greater prosperity during the past 10 or 11 years and a much higher international reputation.
With regard to the European Community, the future generation will take a different view from those of us who have lived through different experiences, but we will share this with them: they will have greater opportunities because of the European Economic Community, because of the way in which people can set up businesses and practise their professions in Europe and the way in which they can travel in Europe. It will be of great advantage to them. I hope that they will take that opportunity and perhaps be better at languages than we have been in the past. It is our job to create a better future. We do not disagree about that.
The hon. Gentleman said that he wanted a united socialist Europe. I do not. Eastern Europe is trying to get away from centralised socialism. The thing that always puzzles me about the hon. Gentleman is that he demands centralised socialism while being himself a great individualist.

Mr. Anthony Nelson: Is my right hon. Friend aware that most people in this country arid throughout Europe will wholly support her in seeking to define more precisely and in practical terms what


European union means? On the exchange rate mechanism, will she acknowledge that many people feel that our interest rates in this country are much too high—almost double those in the European Community—because we rely solely on interest rates rather than on the co-operative mechanisms of the European monetary system? If, for example, we were to join the exchange rate mechanism tomorrow, would our interest rates be higher or lower? I suggest to my right hon. Friend they would be lower, to the benefit of our people.

The Prime Minister: We should all define our terms. I am always amazed that I have such difficulty in getting that across to some of my European colleagues.
With regard to the advantages or otherwise of going into the exchange rate mechanism, Spain may well have had some of the hopes expressed by my hon. Friend, but her interest rate has not moved at all—it is still high—her inflation rate has not moved and her trade deficit has not moved. One must be wary of assuming that by going into the exchange rate mechanism one has an easier ride or one's interest rate will suddenly come down. One should look at the experience of others who have joined it.

Mr. Tam Dalyell: On Hungary, will the Prime Minister ask her senior Ministers to study the report of the Government adviser, Paul Hare, professor of business studies at Heriot-Watt university in Edinburgh, a Hungarian-speaker, to the effect that in the past few weeks Hungarians have been anxious about becoming over dependent on capital from Dusseldorf and Frankfurt, want greater British participation and feel that the Department of Trade and Industry could do rather more than it has done? Can this be studied?

The Prime Minister: The hon. Gentleman is right; some east European countries are a little wary of the dominance of German capital going into their countries and are very anxious that as much capital as possible from this country and others should also go into their countries so that they have a variety of investment. One must obviously choose investment very carefully and make it only in those things that we are good at, but we think that our capital could do best in Hungary, Poland and Czechoslovakia. I will have a look at that report.

Mr. Nigel Forman: Is my right hon. Friend aware that it must be obvious from today's exchanges in the House that her critical but none the less constructive approach to these big questions in the Community is broadly supported in the House? Does she equally accept, however, that the way in which the Community has developed in recent years and is continuing to develop suggests that it will be the private sector which will lead many of these developments and that it will be for national Governments and Community legal bodies to follow and ensure that Community law is adequately enforced?
In that context, does my right hon. Friend realise that her proposals for increasing the enforcement powers of the European Commission and for strengthening the European Court will point the way ahead in the Community?

The Prime Minister: I agree with my hon. Friend that it is the private sector which will lead the way, certainly in

some of the matters connected with eastern Europe. The limiting factor is that when they go into eastern European countries they find no company law, often no contract law, often no credit law and sometimes no banking system, so some companies are naturally a little apprehensive. All those things automatically go to East Germany from West Germany, of course.
I agree with my hon. Friend that this has been a very constructive discussion. We are all conscious of the importance of the decisions that we make for the future and anxious for them to be right.

Mr. Dennis Skinner: Is the Prime Minister aware that, as one who believes that West Germany is getting too big for its jackboots, I cannot accept her rhetoric about the future of Britain, inside or outside the Common Market? We heard all the rhetoric before from the Prime Minister when she threatened to bring barrow-loads of money back from the Common Market in respect of the rebates. That is why invisibles are now in deficit—because of the massive amount of money that we are having to hand over to the Common Market. That is why every family in Britain is forking out £16 a week for the common agricultural policy.
We heard the rhetoric before about the single European market and how the right hon. Lady was going to stand up for Britain. What happened? She guillotined the Common Market legislation and dragged her troops through the Lobbies to get Britain into the single market. I do not believe the rhetoric.

The Prime Minister: I am grateful to the hon. Gentleman. May I ask him to recall that, had we left the financial arrangements where his beloved Government left them——

Mr. Skinner: Nowt to do with me.

The Prime Minister: If we had left them where the Labour Government to which he was extremely hostile had left them, we should by now have paid £7·5 billion more to the Community than we have. It is because of the actions of this Government that we have paid £7·5 billion less. So the British people are £7·5 billion better off under a Conservative Government than they were under Labour.

Mr. Richard Alexander: My right hon. Friend will recollect that in the 1976 referendum Britain voted by a majority for economic union in Europe. May I reassure her that her reservations on political union are far more in tune with the views of the vast majority of people in this country than many of her detractors and critics would seem to suggest?

The Prime Minister: I am grateful to my hon. Friend and I am sure that that is so. I think that people are fearful of political union; they want considerable limits to it; and they want to know what those limits are.

Mr. Nicholas Bennett: Does my right hon. Friend agree that those who describe the genuine fears of people about political union and its effects on national sovereignty and this Parliament as "piffle" fundamentally misunderstand the views of the British people? Furthermore, the British people would rather be represented in the European Community by a bulldog than by a poodle.

The Prime Minister: I am grateful to my hon. Friend. Clearly there must be limits to political union. We must set them out and see that we do not go beyond them.

Mr. Julian Brazier: Does my right hon. Friend agree that in practical terms we have shown the way in Europe and that there are fewer cases outstanding against us than against any other major European country? We have led in a number of initiatives, including the recent one on reducing air fares which would have been of real practical value to European citizens. Finally, it is not Britain that is dragging its feet in extraditing terrorists, whether to Dublin, Brussels or elsewhere.

The Prime Minister: I am grateful to my hon. Friend and I entirely agree that in practical terms we lead the way in implementing Community legislation. I think that that is generally recognised.
With regard to air fares, it was ironic that during a week when others were calling for political union France rejected our application for cutting air fares to Paris and Germany said that it was going to slap an extra tax in July on all lorries that went through German territory.

Mr. Tony Marlow: In the final statement from Dublin my right hon. Friend agreed that further decisive steps should be taken towards European unity. That seems like a cheque that other people might want to cash. Can she define which decisive steps she would agree to?

The Prime Minister: No. I think that if my hon. Friend looks at the statement, first we said that before we would agree to setting up an inter-governmental conference, which would have to be added to the treaty, we must analyse what is meant by political union—and there are several different models. Most people would want to co-operate more closely, but there would be some doubt about whether we needed a new treaty. If we do, we have a number of proposals to put forward that will make the existing institutions work much better. That would seem constructive and preferable to what we have now.
With regard to economic and monetary union, as my hon. Friend knows, we agree fully with what is called Delors stage 1—the completion of the single market. We are very wary indeed about Delors stage 2, and absolutely against stage 3, on which we shall also put up other proposals of our own. But I think that that matter will be contested more vigorously than anything else before us now.

Mr. John Greenway: Is it not clear from the brief debate this afternoon that the whole House is behind my right hon. Friend's stand in Europe, and that those who have criticised her position in recent months should be made to eat their words? Is it not also clear that, while some continue to promote a certain political ideology, she has continued to pursue practical solutions? May I comment on just two of them?

Mr. Speaker: Order. Make it one.

Mr. Greenway: It is crucial that while people are moving around more freely in a freer Europe we must maintain our borders against drug traffickers and terrorists. I warmly welcome the stand that my right hon. Friend took in Dublin to promote the Drug Trafficking Offences Act 1986, which was a British initiative. It was clear from the evidence that we took in the Select

Committee on Home Affairs that this should be pursued, and I am sure that my right hon. Friend will bring all her formidable powers to bear to ensure that that is done.

The Prime Minister: I am grateful. We have got it about right and I think that people are with us in the approach that we are taking. I entirely agree that we do not yet have the issue of borders clear. Britain has good, clear borders because we are an island, but we must remember that other people can get in a car and travel from one side of Europe to the other without going through many border checks. We do not yet have sufficient checks to apprehend drug dealers, criminals, or those who launder money, and such checks must be put in place. When the unification of Germany takes place, it is important that there be effective controls on the East German border with eastern Europe, because the less effective such borders checks are across Europe, the more important they are at the entrance at any point to Europe, whether by land or through an airport or seaport.

Mr. Rupert Allason: Did the Council of Ministers consider the forthcoming elections in Romania? Is my right hon. Friend aware of the widespread concern that European aid to that country has effectively been hijacked by the National Salvation Front, which is basically a group of former failed communists who, are taking the political credit for European generosity?

The Prime Minister: No, we did not discuss Romania. We did rather well to discuss what we did in the time that we had. But we are very much aware of the previous credentials of some members of the National Salvation Front, and of the point that my hon. Friend makes.

Mr. Ian Bruce: Did my right hon. Friend discuss the social charter at the European Council? We voted one to 11 against that charter, but many people, particularly in employment agencies that provide temporary staff, are worried that, despite our voting against, regulations and directives will come through on majority voting which will make their businesses unviable. Will she comment on that?

The Prime Minister: We did not discuss the social charter at this meeting, but my hon. Friend is right to think that, although we did not agree to, and therefore knocked out that social charter, separate directives will come. They will be looked at then, not on the basis of rhetoric but on that of what they propose. We may have far more allies with us on that than we should have had on the general social charter which, had we approved it, would have extended the powers of the Commission beyond some of the treaty powers. That is why we were right not to go along with it. In any case, I believe that our social policy is far better than that represented in the social charter.

Mr. Bill Walker: Is my right hon. Friend aware that many of the personal attacks made on her before she went to Dublin will rebound on those who made them? Does she also recognise that her performance today at the Dispatch Box was an experience that no other European Prime Minister has to face, and that her answers in depth were classics that will long be remembered? Does she further recognise that, as Conservatives and Unionists, we know what union means? We expect others to spell out exactly what they mean by it.

The Prime Minister: I am grateful to my hon. Friend, and I shall cherish the memory of his kind question.

Mr. Geoffrey Dickens: Is my right hon. Friend aware that, in the words of the late Matt Monro, "She's our kind of girl"? Does she realise that during her impressive performance at the Dispatch Box today she has clearly demonstrated to the British people and to Her Majesty the Queen that she is in Europe fighting for Great Britain? Does she also realise that it is quite impossible to talk about political union of Europe unless the French and Germans are prepared to define exactly what they mean by it? There is no doubt that our Prime Minister has got it right, and I hope that she has gained the admiration of the nation this afternoon.

The Prime Minister: I thank my hon. Friend very much. I shall continue to be a fighting Maggie for Britain.

Points of Order

Mr. A. J. Beith: On a point of order, Mr. Speaker. The reason why I sought to raise this point of order about one and a half hours ago was that I wanted it to be heard while the Prime Minister and others who had been involved were still present—[Interruption.] I see, however, that she wants to leave the scene.
The point that I wanted to put to you, Mr. Speaker, was this: is it really a proper and sensible use of the limited time in Prime Minister's Questions to turn it into a ritualised, scripted chanting that sounded more like an audition for "A Chorus Line" than an opportunity to question the Prime Minister on issues such as the poll tax? The result is that other hon. Members and parties were excluded entirely from the questioning. Is it something that you would wish to see repeated, or would deprecate?

Mr. Speaker: It is entirely in the hands of the House. As long as we persist with the open question, we are bound to get much noise at Prime Minister's Question Time. If hon. Members were to table definitive questions, I think that Prime Minister's Question Time would be as it used to be in the past, and would proceed in the same good order as ordinary Question Time.

Mr. Nicholas Bennett: On a point of order, Mr. Speaker. You will recall that yesterday I raised the sub judice rule and the Court of Appeal decision of last Friday. Have you had time to reflect on the position and come to a conclusion?

Mr. Speaker: As I undertook to do yesterday, I have looked at the questions and answers relevant to yesterday's points of order. I find that on 19 October 1988, the hon. Member for Stockton, South (Mr. Devlin) tabled a question to the Home Secretary for written answer on the following day asking whether he intended to propose amendments of the law concerning the right of silence in England and Wales. The Home Secretary in his reply favoured such a change and announced that he was setting up a working party on the subject. He also announced that the Secretary of State for Northern Ireland was laying before the House a draft Order in Council relating to the general criminal law in Northern Ireland. No corresponding question had been tabled to the Secretary of State for Northern Ireland, but an answer was given by him on the same day, 20 October 1988, in the form of information "pursuant to" an answer on the general criminal law in Northern Ireland that he had answered on 20 July of that year. In the supplementary answer, the Secretary of State for Northern Ireland gave details of how the proposed changes in the law of Northern Ireland relating to the right of silence would work.
I am satisfied that neither the question from the hon. Member for Stockton, South nor the answer by either Secretary of State was in breach of the sub judice resolution of the House. A forthcoming general change in the law of evidence could never be announced to Parliament if cases currently being tried under the existing law prevented it. In addition, from what I have seen of the reports of proceedings in the Court of Appeal, the comments of the court do not appear to relate to the parliamentary answers themselves, but to interviews on television.
The Table Office will continue to examine questions for compliance with the sub judice resolution, but nothing in conflict with our own rules occurred in this case.

Mr. Bennett: Further to the point of order and to your statement, Mr. Speaker, would you consider the position further? If a Minister makes a statement on television pursuant to remarks made in the House, the Court of Appeal will take that into consideration. I think that you should consider that point as well.

Mr. Speaker: It is not a proceeding in Parliament. What happens on television and what hon. Members say outside the House are not protected in any way.

Mr. Kenneth Hind: Further to that point of order, Mr. Speaker. You may consider that a matter of privilege arises. I take the point made by my hon. Friend the Member for Pembroke (Mr. Bennett) that when the Court of Appeal examined the answers given by the then Secretary of State for Northern Ireland, he was being questioned in an interview not about the case but about the legislation that he was bringing by way of Order in Council to the House. That makes it a different matter. I do not expect an answer from you at this stage, but would you consider referring the matter to the Select Committee on Privileges?

Mr. Speaker: It is not a matter for me. Statements made outside the House are not covered by privilege.

Rev. Martin Smyth: On a point of order, Mr. Speaker.

Mr. Speaker: Is it on the same point?

Rev. Martin Smyth: No, but you have said, Mr. Speaker, that you are not responsible for what happens on television. Has your attention been drawn to a press report today that television companies, particularly in Northern Ireland, have decided not to broadcast the next Northern Ireland Question Time because, of the first 20 questions, only two have been tabled by Members from Northern Ireland? I voted for television. One reason in favour of television was that it would be possible to broadcast to the regions regional affairs. Is it not a breach of that understanding if Northern Ireland Question Time is not broadcast?

Mr. Speaker: The hon. Member should draw that to the attention of the Select Committee on Televising of Proceedings of the House. One thing that may be said about television is that it has greatly increased the number of questions on the Order Paper and the interest among hon. Members in Question Time.

Mr. David Ashby: Further to the earlier point of order, Mr. Speaker. The House is now televised and statements and answers to questions go over the air into the houses of potential jurors. Therefore, the sub judice rule will have to he considered again. Will you consider that aspect because a very important point has been raised?

Mr. Speaker: It is indeed a very important point. Proceedings in the House are totally privileged. If hon. Members say things to newspapers or say them on television, they are not privileged.

Mr. Harry Barnes: On a point of order, Mr. Speaker. On 30 March I submitted a

question for oral answer on 25 April to the Department of the Environment about the breakdown of local government revenue into central Government grant, the national business rate and the community charge. The question was brought forward for written answer on 20 April. I have not yet received a reply. I have been in contact with the Department of the Environment and I have discovered that the answer provided by the civil servants was on the Minister's desk on 19 April, but now the Department claims that it needs to investigate the figures further in order to provide an answer at a later date. I am afraid that the later date will be after Thursday's elections. The figures are relevant to the elections. It is the duty of the Opposition to press for information to use politically. Can anything be done to ensure that the information which I seek will be available before Thursday?

Mr. Speaker: The hon. Gentleman has done it.

Mr. Ian Bruce: On a point of order, M r. Speaker. In the debate last evening on new clause 5 of the Environmental Protection Bill, I intervened in the speech of the hon. Member for Dewsbury (Mrs. Taylor) and disputed some statistics that she was using. You will find that the record shows that the hon. Lady replied that what I had said was not true. I have had the opportunity to check the record——

Mr. Speaker: Order. A dispute between hon. Members in the Chamber is not a matter for me. The contents of Members' speeches are not my responsibility.

Mr. Bruce: I appreciate that, Mr. Speaker, but I am asking for your guidance. When an Opposition Member accuses a Member on this side of an untrue statement, how can one get redress? Statistics supplied by the RSPCA were being used in a debate and it was claimed that 365,000 stray dogs are killed each year, yet its own report clearly states that only 90,000 stray dogs are killed each year. I need your guidance on how to get the point over.

Mr. Speaker: I listened to part of the debate when I was in the Chair. Even when I was not in the Chamber I heard what was going on. I understand that there was a good deal of disagreement on both sides of the House and indeed, on the Government's side about figures. It is not a matter for me. The hon. Gentleman must find other ways of raising that.

Mr. Richard Holt: On a point of order, Mr. Speaker. You have made a comment about the number of questions on the Order Paper. On quite a few occasions during the past 10 days we have got past questions Nos. 20 or 30, or even up to No. 40, because of the absenteeism of hon. Members, many of whom probably did not know that questions had been tabled in their names. Before questions are starred, Mr. Speaker, would it be possible for you to ensure that they have been tabled personally by the hon. Members? That would avoid duplication and ensure that those who genuinely want to ask questions are here.

Mr. Speaker: The Select Committee on Procedure has examined the matter, and I understand that its report is on the point of being published. I am avidly awaiting it. suggest that the hon. Member also studies it. He may find in that report the answer to his question.

STATUTORY INSTRUMENTS &c.

Ordered,
That the Town and Country Planning General Development (Scotland) Order (S.I., 1990, No. 508) be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the Abolition of Domestic Rates (Domestic and Part Residential Subjects (Scotland) (S.I., 1990, No. 630) be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the Non-Domestic Rates (Levying) (Scotland) Regulations (S.I., 1990, No. 788) be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the Community Charges (Levying, Collection and Payment) (Scotland) Amendment Regulations (S.I., 1990, No. 684) be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the Education (National Curriculum) (Attainment Targets and Programmes of Study in Technology) Order (S.I., 1990, No. 424) be referred to a Standing Committee on Statutory Instruments, &amp;c.
That the Education (National Curriculum) (Attainment Targets and Programmes of Study in English) (No. 2) Order (S.I., 1990, No. 423) be referred to a Standing Committee on Statutory Instruments, &amp;c.—[Mr. Patnick.]

Control of Inflation (Local Government) Bill

Mr. Kenneth Hind: I beg to move, That leave be given to bring in a Bill to control the annual increases in expenditure of local authorities in England and Wales.
The purpose of the Bill is to seek to restrict local government spending to the rate of inflation for the next two years and to gear the measure of inflation to the local pay and prices index. Clearly, it must be recognised by the House that there are elements in the retail prices index that will not be in the pay and prices index, and vice versa. Therefore, it would be unfair to local authorities not to base the spending on the pay and prices index.
We must consider the principle behind the community charge and the way that it is worked out. The changeover from rates, paid by roughly a third of the population, to the community charge has resulted in large increases in local government expenditure. As a consequence, large amounts of extra local government taxation has been paid by the majority of people up and down the country.
I shall use my county of Lancashire as an example because I am most familiar with it. It has been pointed out by colleagues that many local authorities like Lancashire have—as when decimal coinage was introduced—under the umbrella of the change in policy, brought in extra expenditure that they would not otherwise have done. Lancashire is typical of many authorities up and down the country——

Dame Elaine Kellett-Bowman: Labour local authorities.

Mr. Hind: Yes, Labour authorities, as my hon. Friend rightly says, are the worst offenders in this regard. Lancashire is a typical example. It has increased its expenditure by 17·5 per cent. If rates had now been in operation in Lancashire, that would have resulted in an increase of 32 per cent. for every household. Clearly, that problem must be dealt with, and the Bill will do so.
The Bill will also deal with inflation. When inflation is the major enemy of the country and needs to be controlled, local government cannot be immune from its consequences. Labour local authorities are making vast increases and, consequently, increasing pressure on inflation, which damages everyone in our community. Central Government must control expenditure in order to control inflation, and the same discipline must be placed on local government. Hon. Members have to take difficult decisions when they see that there is merit in increasing expenditure, but feel that it would have long-term economic effects on the value of the pound, confidence in the world, the stock exchange, and the overall running of the country. In those circumstances, we say that we refuse to increase expenditure, and will perhaps reconsider the position in the future.
The increases in spending in local government will, in May, probably add at least 1 per cent. to the inflation rate. That will affect the possibility of reductions in mortgage interest rates, business interest rates and the Government's economic strategy. The Bill will ensure that local authorities cannot be immune from their responsibility to the community for downward pressure on inflation.
Labour councils' increased expenditure is everyone else's higher mortgage repayments, and the public must realise that.
Local councils have overspent their budgets for many years. There have been continual over-spenders, and Lancashire has been typical. Many Labour councils have shown themselves totally unable to control expenditure. Therefore, a cap must be placed on them to oblige them to make more sensible use of the resources available and to control what they do.
Until I discussed the matter with people I do not think that many of them realised that county councils, of which Lancashire is typical, levy seven eighths of the charge. They also do not realise that those councillors who are increasing the charge will not come up for re-election until 1993. That means that three further community charges will be set without any accountability to the electorate. If the Bill goes through the House, the electorate will feel that their interests will be protected until they can get to the ballot box to deal with the problem.
We must also recognise that those same county councils were elected in 1989, before the community charge came into operation. They have never had to say, "This is the amount that we will charge", and describe the services that they will provide. In 1993 they will have to face, and deal with, that problem.
The public must realise that county councils finance on a four-year cycle, which the Bill will break. In the first three of its last four years in power, the Labour group on Lancashire council increased rates above the inflation level and stacked away reserves. In the fourth year, election year, the Labour councillors spent those reserves to get themselves elected. Consequently, in the year after the election, they had to recharge the reserves which were as low as £1·7 million. The result is that the community charge in Lancashire consists of £13 per head to restock the reserves, plus an extra £11 to cover the overspend of the previous year when they had not levied sufficient funds from the electorate by way of rates—that makes a total of almost £25. In effect, the public were being bribed with their own money to elect a Labour council in the fourth year of the cycle. The Bill will stop that. I have no doubt that Lancashire is typical of Labour councils throughout the country.
Such a cap will oblige councillors to budget more prudently. Over-spenders like Lancashire will have to look for more efficient ways to provide services. Hampshire county council makes a good comparison. It has 125,000 more people, the age profile of its population is older and it provides the same services—on Government measure, at better quality—with 11,000 fewer employees than are being paid for by the Lancashire electors.
P and A reports are available in Lancashire that show that residential homes are in an appalling state and that social services, such as meals on wheels, are far too expensive and provide poor service, not reaching the people who desperately need them. To date, the council has not taken the advice of its own consultants, but prefers to levy large amounts from the population of Lancashire.
The Bill will also protect people on low income, whom all hon. Members have met, and whose pleas have been ignored by Lancashire county councillors. My district council, West Lancashire, asked for the county council to reduce its expenditure, but it refused. Increases in expenditure hit the population hard. The majority, whether on pensions, benefits or salaries, receive between

6·5 and 9 per cent. in increases. Lancashire constituents will have to meet 17·5 per cent. increases in expenditure, which erodes their standard of living and reduces their disposable income.
Voters must be aware that many Labour councils will succumb to the temptation to help Labour win the next election by continuing to increase the community charge. That is another factor that the electorate must bear in mind. If Opposition Members divide the House on what we believe to be a sensible measure, it will be only to enable their colleagues to continue to undermine the Government.

Mr. Tam Dalyell: I do not oppose the Bill in the spirit of trying to undermine the Government. Without yah-boo, I wish to put a contrary and, I hope, courteous case. If there are to be ten-minute Bills—there are some who think they should be abolished—we should take them seriously and not just let them go through because of parliamentary convenience, lethargy or whatever. I believe that this Bill should be opposed.
During the 1987 general election, I spoke in the hon. Gentleman's town hall in Accrington in support of the Labour candidate Keva Coombes. As a Scot, I spent 10 of the 20 minutes available speaking about the poll tax. When I left the platform, I was asked rather sharply why I had spent so long on that matter. It is only when we experience the poll tax that we realise the full enormity of what is happening.
I say gently to Conservative Members that if they think that year two will be any easier than year one, they are mistaken. It will make parliamentary life a misery. If we could start all over again, for the sake of personal convenience rather than political advantage I would never want to embark on such a road again. There is a geological flaw in the system. The hon. Member for Accrington—[Interruption.] The hon. Member for Hyndburn—[HON. MEMBERS: "Wrong Member."] The hon. Gentleman is tinkering with the tax in the hope of making some improvement. There is no raft; no safety net. The hon. Member for Hyndburn——

Dame Elaine Kellett-Bowman: The hon. Gentleman has the wrong Member.

Mr. Dalyell: I am sorry. The hon. Member for Accrington—[HON. MEMBERS: "Wrong."] There is no safety net to rescue people. There is no safety vehicle. The poll tax is bound by geological flaws and there is no way that it can succeed.
I wish to cite just a few figures. There are now 400,000 people in the Strathclyde region alone who have either not paid or have been unable to pay in full. For most of them, it is not a political protest——

Mr. David Ashby: What is it then?

Mr. Dalyell: I can tell the hon. Gentleman that people at the lower end of the income scale have other bills to pay, such as electricity——

Mr. Ashby: What about the roof tax?

Mr. Dalyell: I am not putting my case in a yah-boo way. I am trying to explain why there are fundamental difficulties. People put poll tax at the bottom of the list,


debts mount up and, even more serious, actual physical illness is caused by worry. We have constituency experience of that.
When any scheme is introduced, sooner or later there must be sanctions. In Scotland, it is the sheriff officers and the warrant sales. There must be some legal sanctions. That is exceedingly unpleasant and creates resentment. It is causing constituency agony. Some 23 per cent. of people do not pay the poll tax. In Lothian region, which is smaller than Strathclyde, 70,000 people have not paid the poll tax. That did not happen under the rating system.
The hon. Gentleman's proposal is merely alleviative—it is an attempt to alleviate a difficult position. There is no way that it can be alleviated. The system is geologically flawed and fundamentally impossible because property is static and people are mobile. It is more difficult in the second year to trace people. Many thousands of people have not had a poll tax demand. The officials in my local authority are very efficient, but because of the constant changes of address the task is very difficult. Rather than trying to introduce an alleviative measure, the House of Commons should face the problem and admit that the poll tax cannot be amended. The system should be changed and we should go no further down the poll tax road.

Mr. Hind: On a point of order. Mr. Deputy Speaker. I am the hon. Member for Lancashire, West, not for Accrington or Hyndburn. The hon. Member for Linlithgow (Mr. Dalyell) did not speak in my constituency.

Question put:—

The House divided: Ayes 88, Noes 143.

Division No. 188]
[5.26 pm


AYES


Aitken, Jonathan
Hamilton, Neil (Tatton)


Alexander, Richard
Hargreaves, Ken (Hyndburn)


Allason, Rupert
Hill, James


Amos, Alan
Hind, Kenneth


Arnold, Jacques (Gravesham)
Holt, Richard


Aspinwall, Jack
Howell, Ralph (North Norfolk)


Banks, Robert (Harrogate)
Hughes, Robert G. (Harrow W)


Bellingham, Henry
Irvine, Michael


Bevan, David Gilroy
Irving, Sir Charles


Body, Sir Richard
Janman, Tim


Bonsor, Sir Nicholas
Jessel, Toby


Bowden, Gerald (Dulwich)
Johnson Smith, Sir Geoffrey


Brazier, Julian
Jones, Gwilym (Cardiff N)


Bruce, Ian (Dorset South)
Jones, Robert B (Herts W)


Buck, Sir Antony
Kellett-Bowman, Dame Elaine


Butler, Chris
Kilfedder, James


Carlisle, John, (Luton N)
King, Roger (B'ham N'thfield)


Carrington, Matthew
Knight, Dame Jill (Edgbaston)


Conway, Derek
Latham, Michael


Coombs, Simon (Swindon)
Lloyd, Sir Ian (Havant)


Cran, James
McNair-Wilson, Sir Michael


Dickens, Geoffrey
Miller, Sir Hal


Dunn, Bob
Mitchell, Andrew (Gedling)


Evans, David (Welwyn Hatf'd)
Monro, Sir Hector


Fenner, Dame Peggy
Morris, M (N'hampton S)


Field, Barry (Isle of Wight)
Mudd, David


Fookes, Dame Janet
Nicholson, David (Taunton)


Gale, Roger
Porter, David (Waveney)


Gill, Christopher
Price, Sir David


Gorman, Mrs Teresa
Riddick, Graham


Gorst, John
Rost, Peter


Gow, Ian
Sayeed, Jonathan


Greenway, Harry (Ealing N)
Shelton, Sir William


Gregory, Conal
Skeet, Sir Trevor


Griffiths, Peter (Portsmouth N)
Speller, Tony


Hague, William
Spicer, Sir Jim (Dorset W)





Stern, Michael
Viggers, Peter


Stokes, Sir John
Waller, Gary


Tapsell, Sir Peter
Ward, John


Thompson, D. (Calder Valley)
Wheeler, Sir John


Thorne, Neil
Widdecombe, Ann


Thurnham, Peter
Wood, Timothy


Townend, John (Bridlington)



Tredinnick, David
Tellers for the Ayes:


Trotter, Neville
Mr. Nicholas Bennett and Mr. David Ashby.


Vaughan, Sir Gerard





NOES


Abbott, Ms Diane
Hood, Jimmy


Allen, Graham
Howells, Geraint


Anderson, Donald
Howells, Dr. Kim (Pontypridd)


Armstrong, Hilary
Hughes, Roy (Newport E)


Ashley, Rt Hon Jack
Ingram, Adam


Barron, Kevin
Jones, Ieuan (Ynys Môn)


Battle, John
Jones, Martyn (Clwyd S W)


Beckett, Margaret
Kaufman, Rt Hon Gerald


Beith, A. J.
Kinnock, Rt Hon Neil


Bell, Stuart
Kirkwood, Archy


Bennett, A. F. (D'nt'n &amp; R'dish)
Leadbitter, Ted


Blunkett, David
Leighton, Ron


Boyes, Roland
Lestor, Joan (Eccles)


Bradley, Keith
Lloyd, Tony (Stretford)


Brown, Nicholas (Newcastle E)
Lofthouse, Geoffrey


Buchan, Norman
McAllion, John


Buckley, George J.
McCartney, Ian


Caborn, Richard
McKay, Allen (Barnsley West)


Callaghan, Jim
McNamara, Kevin


Campbell, Ron (Blyth Valley)
McWilliam, John


Campbell-Savours, D. N.
Madden, Max


Canavan, Dennis
Mahon, Mrs Alice


Cartwright, John
Marek, Dr John


Clark, Dr David (S Shields)
Marshall, Jim (Leicester S)


Clarke, Tom (Monklands W)
Martin, Michael J. (Springburn)


Clay, Bob
Martlew, Eric


Clelland, David
Maxton, John


Clwyd, Mrs Ann
Meacher, Michael


Cohen, Harry
Michael, Alun


Cook, Frank (Stockton N)
Michie, Bill (Sheffield Heeley)


Cousins, Jim
Morgan, Rhodri


Cox, Tom
Morley, Elliot


Crowther, Stan
Morris, Rt Hon A. (W'shawe)


Cryer, Bob
Morris, Rt Hon J. (Aberavon)


Cummings, John
Mullin, Chris


Cunliffe, Lawrence
Murphy, Paul


Cunningham, Dr John
Nellist, Dave


Dalyell, Tarn
Oakes, Rt Hon Gordon


Darling, Alistair
O'Brien, William


Davies, Ron (Caerphilly)
O'Neill, Martin


Davis, Terry (B'ham Hodge H'l)
Owen, Rt Hon Dr David


Dixon, Don
Patchett, Terry


Dunnachie, Jimmy
Pike, Peter L.


Eadie, Alexander
Powell, Ray (Ogmore)


Eastham, Ken
Primarolo, Dawn


Ewing, Harry (Falkirk E)
Quin, Ms Joyce


Ewing, Mrs Margaret (Moray)
Radice, Giles


Fatchett, Derek
Redmond, Martin


Field, Frank (Birkenhead)
Richardson, Jo


Fisher, Mark
Robertson, George


Flannery, Martin
Rogers, Allan


Flynn, Paul
Rowlands, Ted


Foot, Rt Hon Michael
Ruddock, Joan


Foster, Derek
Salmond, Alex


Foulkes, George
Sheldon, Rt Hon Robert


Fyfe, Maria
Short, Clare


Galloway, George
Sillars, Jim


Garrett, John (Norwich South)
Skinner, Dennis


Garrett, Ted (Wallsend)
Smith, Andrew (Oxford E)


Gould, Bryan
Smith, C. (Isl'ton &amp; F'bury)


Graham, Thomas
Smith, Rt Hon J. (Monk'ds E)


Griffiths, Win (Bridgend)
Spearing, Nigel


Hardy, Peter
Steel, Rt Hon Sir David


Haynes, Frank
Steinberg, Gerry


Heal, Mrs Sylvia
Stott, Roger


Hinchliffe, David
Straw, Jack


Hogg, N. (C'nauld &amp; Kilsyth)
Taylor, Mrs Ann (Dewsbury)


Home Robertson, John
Thompson, Jack (Wansbeck)






Walley, Joan
Young, David (Bolton SE)


Wardell, Gareth (Gower)



Watson, Mike (Glasgow, C)
Tellers for the Noes:


Welsh, Michael (Doncaster N)
Mr. Harry Barnes and


Williams, Alan W. (Carm'then)
 Mr. Terry Lewis


Wray, Jimmy

Question accordingly negatived.

Points of Order

Sir Hal Miller: On a point of order, M r. Deputy Speaker. I apologise to my right hon. Friend the Chief Secretary to the Treasury for interrupting the proceedings, but I am raising an extremely urgent matter on which we need a statement from a responsible Minister.
I have just been informed that Mr. Peter Mitchell, among others at Walter Somers, has been arrested and was initially denied access to his solicitor, who was procured only through the good intervention of his wife. I should like a Minister to make a statement on how this has occurred, as I have evidence which has been tested by a former Attorney-General and which stands up in court. I am very happy to go to court should they be charged. As they have not been charged so far, I understand that the matter is not sub judice and therefore it is proper and meet to have a statement before the close of business today.

Several Hon. Members: rose——

Mr. Deputy Speaker (Mr. Harold Walker): Order. Let me deal with one point of order at a time. I have received no request for permission to make a statement. Of course, the matters that the hon. Gentleman has raised are not directly for the Chair, but doubtless what has been said will have been heard. Certainly the Chair will take account of the hon. Gentleman's point about the application of the sub judice rule should these matters be referred to in subsequent exchanges.

Mr. Richard Caborn: Further to that point of order, Mr. Deputy Speaker. As you probably know, the case also affects my constituency. I understand that between Somers and Forgemasters 14 people are now being questioned, three are under arrest and six further executives at Forgemasters are at police stations giving statements. I concur with the request for an urgent statement in the House as the case is having a tremendous effect on both companies and we want to get the matter clear. The Government have a series of questions and a letter that I sent to the Prime Minister because I have had over the phone clearance on those contracts on which those people are now being questioned and which were cleared by the Department of Trade and Industry.

Mr. Deputy Speaker: I cannot usefully add to what said in reply to the earlier point of order.

Mr. Anthony Beaumont-Dark: Further to the point of order raised by my hon. Friend the Member for Bromsgrove (Sir H. Miller), Mr. Deputy Speaker. We have now reached a point where one British subject is languishing in a Greek prison and other respectable people are in the hands of the police or the Revenue. If the House is not about justice for individuals, it is about nothing. It is time that the Government made a proper and prepared statement about the matter. There is no justice if people can be made scapegoats for other people's inefficiencies or injustice.

Mr. Tam Dalyell (Linlighgow): Further to that point of order, Mr. Deputy Speaker. If we are to have a statement, and whoever makes it, could we have a Defence Minister present to explain the role of the secretariat of the Defence


Export Services Organisation in the matter? That has considerable relevance to the legal proceedings that have taken place.

Sir John Stokes: Further to that point of order, Mr. Deputy Speaker. As you will know, the excellent long-established and highly regarded firm to which my hon. Friend the Member for Bromsgrove (Sir H. Miller) referred is in my constituency. The moment that I heard about these difficulties, I tried to obtain information from several Government Departments. I have been given no help whatever. Surely one is entitled to receive an answer from a Minister. Ministers should not hide behind civil servants.

Mr. Frank Haynes: Further to that point of order, Mr. Deputy Speaker. I am surprised that the Chair has not taken some action before now. I concur with the hon. Member for Bromsgrove (Sir H. Miller) about this affair. I suggest that the Chair seriously considers bringing the Secretary of State for Trade and Industry to the Bar of the House. Let us deal with the matter.

Mr. A. J. Beith: Further to that point of order, Mr. Deputy Speaker. Is it not usual, when the Chair is faced with problems such as this in the course of the day's business, for the Leader of the House to be on hand to intervene and perhaps to avoid the Chair becoming involved in matters that cannot be dealt with easily under Standing Orders? As several Conservative Members have raised legitimate points, has there not been sufficient time to send a message to the Leader of the House that a matter of genuine concern has been raised on which he should come before the House?

Mr. Deputy Speaker: This is a serious matter about which hon. Members are deeply worried. Undoubtedly what has been said in the Chamber will be communicated to the Leader of the House. I repeat that I have not yet received any request for permission to make a statement.

Finance Bill

[Relevant document: Fourth Report of the Treasury and Civil Service Committee of Session 1989–90 on the 1990 Budget (HC314)]

Order for Second Reading read.

The Chief Secretary to the Treasury (Mr. Norman Lamont): I beg to move, That the Bill be now read a Second time.
The Bill implements the measures introduced by my right hon. Friend the Chancellor of the Exchequer in his Budget. As a background to today's debate, the House has the benefit of the report of the Treasury Select Committee on the Budget. The report is thoughtful and thorough. As my right hon. Friend said in his Budget speech, this year we have provided a longer and more comprehensive account in the Red Book of the operation of monetary policy. I hope that, as we intended, it has been useful to the Select Committee in its inquiry. This is not the time for me to comment on the report in detail. The Committee has made several recommendations, which we are studying carefully and to which we shall respond fully in due course. However, I shall refer to one or two points in the report.
I note with interest the Select Committee's view that reserve asset ratios are not, as is sometimes suggested, an alternative monetary instrument to interest rates. The Committee report suggests that reserve asset ratios do not serve as direct credit controls.
I also note with interest the Select Committee's anxiety about the retail prices index as a reliable, or unreliable, indicator of inflationary pressures. To some extent, the Committee's comments echo remarks and observations made by the Government on other occasions.
The Select Committee's remarks about statistics are also interesting. It is always tempting, although on the whole it is a temptation to be avoided, to blame any problem of economic management on misleading statistics. Harold Macmillan referred to the difficulty of trying to steer the economy on the basis of statistics. He compared it with looking up train times in last year's Bradshaw. More recently, the right hon. Member for Leeds, East (Mr. Healey), in his highly entertaining memoirs which I read at Christmas, said of economic forecasts:
Like long-term weather forecasts they are better than nothing … But their origin lies in the extrapolation from a partially known past, through an unknown present, to an unknowable future according to theories about the causal relationships between certain economic variables which are hotly disputed by academic economists, and may in fact change from country to country or from decade to decade.
At the time of the 1988 Budget, we believed—on the basis of provisional estimates—that domestic demand had risen by 4 per cent. in 1987. The latest estimate is that demand increased by 5½per cent. In a situation where we think that the sustainable long-term growth rate may be a little under 3 per cent. a year, this makes the crucial difference between an economy growing at close to its sustainable rate and one growing well in excess of it. That was precisely the point that the Committee made.
The state of economic statistics has been a concern of the Select Committee for some time now, and there has been some interchange between the Committee and the Treasury on this. I am glad to see that the Committee believes that that has been fruitful. As the Chancellor told


the Committee in his evidence on 3 April, it is both desirable and necessary to improve the general quality of economic statistics, and this is being pursued with the Central Statistical Office. We shall return to the Committee and reply fully to those points.
The debate on the Finance Bill usually becomes a debate on the tax measures and on the economy more generally. No doubt we are about to hear from the hon. Member for Derby, South (Mrs. Beckett) a long catalogue of gloomy prognostications, as we heard from the right hon. and learned Member for Monklands, East (Mr. Smith) the other day. The understandable anxiety about inflation, and the current account, should not be allowed to disguise the real gains and improvements that the British economy has made in the past decade.
I am not sure whether the Opposition really believe it when they claim that nothing has gone right and that there have been no improvements whatever in the past decade, but in my opinion they do no service to their party—let alone any wider interest—with that distorted view.
The Opposition seem content to point selectively to the fact, which is not disputed by the Government, that the British economy will grow more slowly than Germany or the EC average this year, without even so much as acknowledging that, on average, over the 1980s the United Kingdom growth rate has been significantly above that of Germany and the EC average. And even with the slower growth forecast for 1990, the United Kingdom will have grown faster since 1980 than Germany or France. The Opposition concentrate on one year at the expense of a decade. The fact that I mentioned is remarkable, but it is never mentioned. I wonder why.
The Opposition are also prepared to point out that our relative inflation rate this year will be considerably worse than the European Community average, without so much as mentioning that for the past 10 years our inflation rate has been broadly the same as—in fact, only 0·1 percentage point above—the European Community average since May 1979. That is a considerable improvement on the previous two years.
The Opposition are again content to point out that investment will fall this year, without acknowledging for one moment that business investment growth since 1980 has been faster here than in all the major seven countries except Japan.
Although it is much mentioned by independent commentators, the Opposition have never in my hearing mentioned the fact that United Kingdom manufacturing productivity growth was faster in the 1980s than all the other G7 countries. It will probably not be long before they mention that this year productivity will slow down as the economy slows down. Again, that is a statistic for one year which needs to be set against the progress of a decade.
Most remarkably, we never hear the Opposition mention that on a standardised basis United Kingdom unemployment is below that for the European Community as a whole. When have we ever heard from the Opposition about the remarkable transformation in profitability of British industry or about the remarkable improvement in industrial relations compared with those a decade ago? If the Opposition are as concerned about manufacturing industry as they profess to be, they should acknowledge those two factors because both are essential for the survival and growth of manufacturing industry.
These are solid achievements in the past decade. The Opposition may dispute them, but other less partisan

observers are prepared to be more realistic. An article in The Independent yesterday by the director of the Institute of Fiscal Studies is a case in point. In that article, Mr. Bill Robinson drew the connection between the lasting supply-side improvements and the performance of our exports. He wrote:
UK exporters have broadly managed to hold their share of world markets with no help from the exchange rate. This is an important change, for as long as we were losing market share, we were condemned to a slower rate of growth than our competitors. It is no coincidence that in the 1980s we moved from near the bottom of the world growth league to near the top.
The structural improvements in the economy which wrought that transformation are still in place. There is no reason why the 1990s should not be another decade of steadily improving economic performance.

Mr. John Battle: The Chief Secretary may be aware that the Engineering Employers Federation published its economic trends survey only last week. It pointed out that there are fundamental structural problems facing the engineering industry because the demand for engineering products outside the United Kingdom is falling rapidly and that will mean the loss of 19,000 jobs in the coming year. It does not paint such a rosy picture as the right hon. Gentleman does. That does not suggest that the Opposition have a partisan view.

Mr. Lamont: There has been a remarkable increase in engineering output in recent years and a remarkable increase in investment in the engineering industry. It has never been disputed that there will be a slow-down, but our point is that people should not look at that slow-down in isolation. They should look not at the statistics for one year, but at the dramatic progress that has been made over a decade.
The hon. Member for Leeds, West (Mr. Battle) might like to look at the annual survey of the United Kingdom economy last autumn by the Organisation for Economic Co-operation and Development, which again pointed to our improved supply-side performance and compared it both with past performance and with the progress of our competitors. It compared the improvement in the balance between output growth and inflation in the 1980s with that from 1973 to 1979:
suggesting that there have been policy induced improvements in supply performance … the deterioration in performance in the 1970s has been reversed and compared with other Member countries, there has been a relative improvement.

Mr. John Townend: Does my right hon. Friend agree that as the engineering industry is facing problems, its answer is to look abroad? It is essential that it keeps down unit labour costs. Does he agree that the unions were very unwise this year to press for a shorter working week, which increases unit labour costs and reduces competitiveness?

Mr. Lamont: I am sure that that is the last thing we can afford at the moment. My hon. Friend is right. Fortunately, exports of manufactured goods, including exports of engineering goods, have been doing extremely well.

Sir Peter Hordern: Conservative Members must concur with all that my right hon. Friend has said about the excellent record of British industry and of the economy in general over the past 10 years. Is it not the case that engineering companies are now complaining about


difficulties ahead? Is it not also the case that wage increases are now rising fast? Is it not important for my right hon. Friend and the Government to make it absolutely clear that the Government will not bail out companies which award large wage increases by depreciating the currency against other major currencies? It would be most helpful for my right hon. Friend to say that.

Mr. Lamont: We will make that clear. We have repeatedly made it clear that excessive wage claims will not be accommodated by a relaxation of monetary policy and that if wage negotiators on either side insist on inflationary wage settlements, the main effects will be felt in the labour market.
My hon. Friend the Member for Horsham (Sir P. Hordern) referred to industry. It was interesting that yesterday the director general of the Confederation of British Industry in a speech again referred to the progress that has been made in manufacturing industry in the past decade. He referred to the period before 1979 as one of relative decline and social disintegration and then said:
That era ended thank goodness in 1979. The new era could perhaps best be labelled 'the era of free market competition'.
That is the considered view of the director general of the CBI. He went on:
We enter the 1990s with the supply side of the British economy in incomparably better shape than at any time in our history.
The view that there has been a fundamental transformation of our underlying competitiveness is the view taken by the director of the Institute of Fiscal Studies, by the OECD in its survey of the British economy, and by the director general of the CBI. Apparently everybody is out of step except the Labour party. Who should we believe—the OECD, the CBI, the Institute of Fiscal Studies or the Labour party? Which is the dispassionate observer and which has a vested interest?
Perhaps the director general of the CBI had the Labour party in mind when he said:
We must believe in ourselves. Too many damaging myths have gained currency—myths which if unchallenged will prejudice our ability to build on what has already been achieved.
I believe that a constructive Opposition would recognise that there have been tremendous improvements in the past decade and that that is an opportunity on which they should be seeking to build, and to suggest a way ahead and improvements rather than attempting to make us believe that there has been no progress.

Mr. Alex Salmond: I hope that the Chief Secretary will tell the House what implications he feels that the coming changes in the poll tax will have for the Budget projections. When the changes are introduced, will they be backdated for Scotland to cover the year in which the Scottish people have borne the full brunt of the poll tax unamended? Will the retrospective changes, if introduced, be funded from the Treasury or merely recycled from Scottish Office funding?

Mr. Lamont: The hon. Gentleman gets 10 out of 10 for ingenuity, but that has nothing to do with the Finance Bill and he will not tempt me.
Our present concerns stem from the excessive growth of 1987 and 1988. That lies behind current concerns about inflation and the current account. That period was one

when, incidentally, the Labour party continually claimed that we were not growing fast enough, continually described the economy as being in recession and called continuously for even larger stimuli to be given to the economy.
The fact is that, precisely when the Labour party was calling for further expansion, we had a period of too rapid growth when demand for goods both from companies and from consumers outstripped even a much improved supply-side performance. This has produced an inevitable reappearance of inflationary pressure although the underlying rate is still below the best achieved by the Labour Government and the percentage rise in underlying inflation since 1986 is not out of line with the increase in the United States, Japan or Germany.
We have tightened policy considerably. A tight monetary policy—high interest rates—has been backed by a tight fiscal stance with large budget surpluses. There is clear evidence that the economy has slowed considerably. The evidence can be seen in the housing market, in retail sales and in motor car registrations. Real domestic demand is forecast to fall slightly this year following growth averaging 5 per cent. over the previous three years. Although the monthly trade figures for March were disappointing, the underlying trend suggests that exports are growing far faster than imports.
In the past six months, exports have been up by 11 per cent. compared with a year earlier, whereas imports have risen by only 1½per cent. in the same period. The CBI quarterly trends survey provides further evidence that the decline in domestic demand has been broadly offset by continued expansion in export orders. The evidence is there to suggest that firms are switching from the home market into export orders on a considerable scale.
The Budget was designed to maintain our tight policy stance. Some have complained that it was not tough enough and some have suggested that taxes should have been raised. To have had any real impact, we should have needed a substantial increase of, say, £5 billion, which in our judgment would have risked pushing the economy into an unnecessary recession and damaging our improved supply-side performance. The Government's expectation is that the current policy will prove tight enough to bring down inflation.

Mr. A. J. Beith: The Chief Secretary is fond of referring to a consensus of commentators. Does he accept that a consensus of commentators—even the same ones as he has been quoting—would not agree that the Government's policies enable them to get inflation down to their forecast level of 31 per cent. by 1992?

Mr. Lamont: I do not accept that. The hon. Gentleman may have noticed in the Financial Times last week that a range of outside forecasts were placed alongside Government forecasts and published in tabular form. There were about 30 in all. The difference between those outside forecasts and the Government's forecast was not all that great. Indeed, some of the outsiders were even more optimistic.
The years leading up to 1988 and 1989 saw a remarkable increase in confidence and profitability, combined with the freeing of financial markets. These factors provided both the incentive and the means for a huge boom in business investment—perhaps the biggest


since the war. Between 1986 and 1989, companies and public corporations increased their fixed investment by more than 40 per cent. in real terms. Over the eight years to 1989, investment has grown twice as fast as consumption. But although investment has grown rapidly, personal saving has been falling. Individuals, enjoying steadily rising real incomes, have had the confidence to borrow more and save less. As a result, private saving overall has been insufficient to match the high level of investment; indeed, the excess of private investment over private saving has been quite unprecedented in the post-war period.
The need to restore the balance between savings and investment is especially important for the current account. Just as a company which invests more than it saves via retained earnings has to borrow from elsewhere, so a nation which invests more than it saves must borrow the balance from abroad. In other words, the current account will be in deficit. The public sector has been in substantial surplus, but this has been more than offset by the private sector's borrowing from abroad to finance the investment boom. Higher interest rates are already boosting saving, but the Budget and the Finance Bill also contain further measures to bring saving and investment back into balance, which is important for the current account.
The Budget was a Budget for savers, and the Bill contains a whole range of tax incentives which will help to improve the climate for saving. Conservative Governments have always made it their business to support the saver. Anyone who put his money in a building society in 1979 will have seen the value of his savings rise by a half in real terms before tax. Savers are getting a much better return, and rightly so. Under the last Labour Government, a punitive tax system made saving a worthless activity. Inflation was high and interest rates low in comparison. The real return on savings was negative and the post-tax return was fiercely negative.
Nor was the investment income surcharge, as Labour Members often imply, confined to the so-called super-rich. When Labour left office in 1979, the surcharge was payable on savings income above £1,700 a year. Investment income surcharge was payable on sums as small as that.

Mr. Eric Martlew: Does the Chief Secretary agree that, when the Conservative party took office, inflation was running at 10·3 per cent. and that it is likely to have been running at more than 10 per cent. this April? Does not that mean that we have had 11 wasted years of Conservative Government?

Mr. Lamont: I thought that the statistics were so well known that it was hardly necessary to rehearse the average rates of inflation under this Government and under the Labour Administration respectively. Even now, at the high point of the cycle, the underlying rate of inflation is below the lowest level ever achieved by the Labour Government. But that is a slight digression from my main point about savings. Given the situation that we inherited, it is small wonder that one of our first priorities was to reduce marginal rates, and this we have done. Successive cuts in income tax and the abolition of the investment income surcharge mean that for many savers—not just higher rate taxpayers but basic rate taxpayers, too—marginal rates have been halved.
We have made saving worth while. One of the welcome results has been the rise in pensioners' average net incomes, which between 1979 and 1986 went up by more than 30 per cent. in real terms.

Mr. Giles Radice: If the Government's policy on saving is so good, how come the saving ratio is at an all-time low whereas when the Labour Government were in power the savings ratio was about double what it is today?

Mr. Lamont: Perhaps I did not make myself sufficiently clear. As I tried to explain, the problem has not been hat people have not been saving in the sense of putting money aside from their earnings. The problem has been that net savings, measured after borrowing, have fallen. The trouble is that people have had confidence and have been borrowing more than ever before. That applies not just to individuals but to companies, and companies do not borrow unless they have great confidence in the future.
Our next priority has been to ensure that the choice in different savings instruments is less distorted by the tax system. For example, if one transfers money from a bank to a building society, no tax charge is incurred, whereas if one transfers it from a bank into equities one has to pay a surcharge in the form of stamp duty. In 1979, the surcharge was as high as 2 per cent. It was hardly surprising that direct share ownership was going out of fashion.
My right hon. Friend the Member for Blaby (Mr. Lawson) halved the rate in 1984 and again in 1986. This year we have gone one step further. Clauses 91 to 95 will finally put an end to a duty which was introduced in 1714, the year of Queen Anne's death. I regret to say that the tax was introduced by a Tory Chancellor of the Exchequer, so this change represents something of a delayed U-turn, although my hon. Friends will welcome it none the less.
Abolition will coincide as far as is possible with the introduction of paperless share transactions by the stock exchange, probably at the beginning of 1992. It will ensure that the City of London enters the European single market in as competitive a position as possible. It will also ensure that share ownership continues to widen and deepen. One in four adults in Britain now owns shares; in 1979, the proportion was just one in 14. That has been a remarkable change. But the benefit of abolition will not just be confined to direct shareholders. Most of the full year cost of £800 million will go to benefit the tens of millions of people who save indirectly through the institutions—in life assurance, pensions and unit trusts.
As well as removing distortions, we have in recent years created new savings media which allow people to accumulate capital, unencumbered by demands for income and capital gains tax. Nearly 4 million people have now taken out personal pensions; 2 million employees have been given shares or options to shares through employee share schemes, again showing that the benefits are not confined to a few rich people; and 700,000 savers have taken out personal equity plans. The number is likely to grow further in the year ahead as savers take advantage of the 25 per cent. increase in the PEP limit announced in my right hon. Friend's Budget.
The success of the schemes has surpassed expectation. And the Government have decided that it is time to extend similar tax treatment to saving through banks and


building societies. That is how most people—34 million of them—save. That is why we are introducing tax exempt special savings accounts under clause 23.
The attraction of the tax exempt special savings account is essentially its simplicity. It is necessary only to deposit money and leave it there for the full five years of the account and the saver gets his or her return tax free. Savers can withdraw interest as it accrues, albeit on a net of tax basis, or they can leave it to roll up. In either event, they will be entitled to the tax paid at the end of the five-year period. I believe that that is a considerable break-through and much to be welcomed.
The tax exempt special savings account will suit a wide variety of savers. The pensioner with a small capital sum will be able to put up to £3,000 in his account in the first year and £1,800 in subsequent years up to a total limit of £9,000. The younger person, perhaps saving for a deposit on a flat, will be able to put an annual bonus into a TESSA or, if it is more convenient, enter a contractual arrangement saving up to £150 a month.
Of course there have been contractual savings schemes in the past, but they were largely designed to raise money for the Government. The TESSA scheme is completely different. The banks and building societies will be free to offer competitive interest rates. I have no doubt that the scheme will prove immensely popular when it begins in January 1991. As the marketing manager of one of the clearing banks said:
This is what the banks and building societies have wanted for years. It will do a lot to encourage the small saver and we will be aiming to introduce the TESSA account as soon as possible.
Complementing those measures will be the abolition of the composite rate tax which will be the seventh major tax to be abolished by the Government. When composite rate tax was first put on the statute book in 1951, it affected fewer than 3 million building society depositors. It could be justified on the grounds that it was simple, easy to administer and that there were alternative savings media which attracted interest gross of tax.
The composite rate tax system may have had its administrative attractions for the Government, and for the Treasury in particular, but the advent of independent taxation weakened the case for it considerably. As a result, the number of non-taxpayers paying composite rate tax rose to 14 million and the Government decided that it was time to change the system. From April 1991, non-taxpayers will be able to receive their building society or bank interest free of tax. Five million married women, 4 million pensioners, 2·5 million children and 2·5 million other depositors with low incomes will benefit by an average of £1·40 a week. The relevant clauses will be introduced in Committee.

Mr. Michael Stern: Does my right hon. Friend agree that one of the most admirable aspects of that abolition is the element of self-certification for tax-free status, which shows a greater—and justifiable—trust in the taxpayer than many Governments have dared to show in the past?

Mr. Lamont: I am grateful for my hon. Friend's observations. Obviously abolition also has administrative

advantages. I believe that it is better to put the compliance obligation on the taxpayer. I wholly concur with my hon. Friend's point.

Mr. Denzil Davies: Will the right hon. Gentleman confirm that of those paying CRT, although a minority will not pay tax, most depositors will pay more because they will pay at the standard rate? The Government will raise quite a substantial sum of money next year as a result of that change.

Mr. Lamont: We cannot abolish the CRT and expect people who ought to pay the basic rate of income tax not to pay it. That was the whole theory of CRT. There was a weighting between the non-taxpayer and the taxpayer. It was a subsidy to the better off and enormously unfair on the less well off. I am surprised that the right hon. Member for Llanelli (Mr. Davies) intervened on behalf of the better off.

Mr. Jeremy Hanley: With the standard rate of taxation, personal allowances can be taken into account, which reduces the rate very much lower than the rate to which the right hon. Member for Llanelli (Mr. Davies) referred.

Mr. Lamont: My hon. Friend is absolutely right and I am grateful to him.
I have said that the relevant clauses on CRT will be introduced in Committee. I must state, as I have indicated to the Opposition, that that is not the only measure announced in the Budget which will be tabled in Committee. That reflects pressure on parliamentary counsel, the need to consult interested parties and, of course, the need to get complex and far-reaching measures absolutely right.
An improved environment for savers will in time also feed though to an improved environment for investors. That is the recipe for balanced growth. However, the Bill contains a number of measures designed to have a more immediate effect on businesses. For example, clause 19 will increase the small companies' tax thresholds to £200,000 and to £1 million and will reduce the tax burden for 20,000 companies. That means that no company with profits of less than £1 million will pay the full rate of corporation tax.
Since the Government took office, the lower threshold has increased by more than 60 per cent. in real terms and the higher threshold almost fivefold—and that is on top of a reduction in the small companies corporation tax rate from 42 per cent. to 25 per cent. As a result, we can now fairly claim to have one of the most favourable tax regimes for small firms anywhere in the world. Even though the economy has been slowing down, new businesses are still being created at the rate of about 1,500 a week after netting off failures. That is a dramatic change from the time when the Labour party was in office and there was a net fall in new business creation.
Small firms will also benefit particularly from the VAT changes. The VAT changes in clauses 9 and 10 will reduce burdens on business and they represent a major package of deregulation. By allowing VAT relief on all bad debts, those clauses end an anomaly whereby companies in effect pay tax on money that they did not receive. Registration for VAT will also be easier. The vast majority of firms will no longer be subjected to three complicated turnover tests.


Instead, there will be just one simple test based on turnover in the previous year. That should be of particular benefit to new businesses.
Employee share ownership trusts were given a statutory basis in last year's Budget with support from hon. Members on both sides of the House. My hon. Friend the Member for Esher (Mr. Taylor) has been a veteran campaigner on that issue and the hon. Members for Newcastle-upon-Tyne, East (Mr. Brown) and for Pontypridd (Dr. Howells) have also strongly supported that principle. I believe that support for ESOPs is strong among Conservative and Opposition Members.
If ESOPs are to become widespread, they need further encouragement. At present, if a proprietor sells shares in his company to his work force he incurs an immediate capital gains tax charge. If, on the other hand, he sells them to a quoted company—a point that was brought to my attention last year by my hon. Friend the Member for Esher—in exchange for shares, he qualifies for roll-over relief. That is an enormous disincentive to creating an ESOP and clauses 25 to 32 will ensure that that position is changed. The owner who sells shares in his company to an ESOP will now qualify for roll-over relief.
The Bill also contains a small but useful measure to help training. Training and enterprise councils will give the private sector new opportunities to determine its own needs and to help meet them. The Government believe that employers are best placed to decide the training needs of their businesses and to organise appropriate training. Clause 68 will ensure that contributions by businesses to support. TECs are tax deductible. That new relief will give a further incentive to businesses to make donations to TECs.
Clause 20 will ensure that nurseries provided by employers will no longer be treated as a benefit in kind for income tax purposes, as has been the case since 1948. We have always taken the view—and previous Governments have also taken the view—that it is not for the Government to encourage or discourage women with children to work through the provision of artificial tax incentives or disincentives. We remain of the view that, in general, benefits in kind should be subject to income tax. However, it was becoming increasingly apparent that the tax treatment of workplace nurseries was difficult to collect and functioned as something of a disincentive both to people wanting to return to the labour force and to employers.
The measure has been criticised by some as not going far enough, but general child care relief would cost hundreds of millions of pounds and would run counter to the dominant thrust of tax reform in recent years—that is, to achieve a wider tax base with much lower marginal rates.
We have instead opted for a limited relief, which in my view represents a sensible balance between the needs of the tax system and widespread demands for change. The new exemption will involve only a small deadweight cost and, with its focus on the place of work, is consistent with the tax treatment of other benefits in kind such as canteens provided at the employment location.
The final business measure that I should like to mention relates to banks' sovereign debt. Tax relief is, as it should be, available to banks, as to other lenders, for bad and doubtful debts. That includes debts owed to banks by foreign Governments. Clause 66 tackles the thorny problem of the tax treatment of the writing off by some

banks of substantial proportions of such debt. The present law is uncertain. To allow banks to claim relief on the full amount written off in any one year could have a significant adverse impact on tax revenues. The proposed clause will allow banks to continue to offset their losses fully against tax, but the losses will have to be phased over a period of some years. The exact phasing permissible will be broadly based on the Bank of England's matrix. If a debt is sold to a third party, the tax relief will be similarly phased. If the debt is sold back to the debtor, however, relief will be immediately available.

Mr. Peter Viggers: An important point of principle is involved here. The directors of a company arid its auditors should be responsible for assessing the profits of a company, and that company should be taxed accordingly. Clause 66 will, in effect, deprive a company of sovereign debt write-offs to which it would otherwise be entitled. Does my right hon. Friend agree that this is a windfall profits tax and that it would be quite right for the Committee to look carefully at it?

Mr. Lamont: That issue can be debated further, but the present system is extremely uncertain. As I said, the effect of the measure is to phase relief. Relief is obtained in the end, but enormous sums of money are at stake. The measure smoothes out the sudden increases in cost to the Exchequer. In the end, no one is denied relief. To that extent, I do not entirely go along with my hon. Friend's intervention, but the issue can be returned to in Committee.

Sir William Clark: Surely, although relief will be given eventually, the cash flow of a business is affected. If the relief is confined to banks, why should it not be extended to international companies which also have overseas debts?

Mr. Lamont: We are dealing with sovereign debt. That is the key difference. The existing law provides relief for debt to the extent that the principal is estimated to be irrecoverable. It is very hard to make an estimate for sovereign debt, and it seems reasonable to prescribe the detailed method and to provide a smoother profile. The principles on which tax relief is given remain the same, but the legislation is not restricted only to banks. I do not accept that this measure will have any adverse or significant effect on the standing or position of banks.

Sir Peter Hordern: Will my right hon. Friend give an assurance that no bank will be unable to reduce its liability to sovereign debt to keep up its capital adequacy ratios simply to conform with the best position that it should have to get the maximum tax advantage?

Mr. Lamont: I cannot give that assurance. I shall look at what my hon. Friend has said. If the situation is otherwise, I shall certainly indicate it to him.
If the House will allow me, I now move from sovereign debt and the banks to the slightly more popular subject of football. Few of the measures in the Bill have met with such unqualified approval on both sides of the House as the reduction in pools betting duty, made under the condition that the pools promoters pass on the full amount to the Football Trust, to be used to implement the recommendations made by Lord Justice Taylor. A new clause will be introduced to implement that reduction, which will result in an increase of about 100 million in the


amount that the Football Trust will be able to make available towards improving comfort and safety at football grounds. I am sure that this measure will go a long way towards making football more attractive and restore its image and its rightful place as our national game and a safe game.
One of the results of lower tax rates and higher take home pay is that people have more disposable income to give to charity. The Government have consistently encouraged that, and since 1979 charitable giving has more than doubled in real terms. This year's Budget continues that approach. In 1987, my right hon. Friend the Member for Blaby introduced the payroll giving scheme. [Interruption.] More than 175,000 people are now participating, and donations are now running at more than £7 million a year. Clause 22 will encourage the further expansion of such schemes by raising the annual limit by 25 per cent., from £480 to £600. Opposition Members are obviously unimpressed by that progress but, of course, charities are much more enthusiastic than Opposition Members. I sometimes suspect that the real reason for Opposition Members' scepticism is their basic hostility to private giving rather than any doubts about the mechanics of the scheme.
For the first time, we intend also to allow relief on one-off donations. The gift aid scheme, which was announced in the Budget, will give relief on gifts of between £600—the annual upper limit for the payroll giving scheme so it dovetails well with the payroll giving scheme—and £5 million. Organisations that benefit from large one-off donations—for instance, museums launching appeals for new galleries or major works of art—will be particularly advantaged by gift aid. The Government will be bringing forward a new clause in Committee to give effect to this proposal. The combined effect of the two measures should be a further substantial increase in charitable giving. Opposition Members are sceptical, but the Charities Aid Foundation has estimated that charities might take in an extra £50 million as a result of the measures in the Bill.
There is one notable and unusual feature in this year's Finance Bill. Clause 16 leaves the main rates of income tax unchanged. It is a measure of our success in cutting taxes that this is the first Budget and Finance Bill not to cut taxes or national insurance contributions since 1981. We may not be cutting income taxes this year, but we certainly have done so over the past 10 years. If the bands and allowances that we inherited in 1979 had merely been indexed to inflation and we had maintained the same rates, a married man on average earnings would today be paying more than £1,000 per year more in income tax.
It remains the Government's intention to cut taxes further and to move towards a basic rate of income tax of 20p. Our strategy, policy and commitment are clear. I only wish that the Opposition would be as forthcoming about their intentions on taxation, which remain shrouded in mystery. I always wondered what the Leader of the Opposition meant when, after their election defeat in 1987, he said that what Labour needed was a "relatively blank sheet". That blank sheet is the Opposition's taxation policy—even if it is not quite a blank sheet, the key details are certainly missing. It has been a remarkable achievement by the right hon. and learned Member for

Monklands, East that he has made a brilliant success of saying nothing. He has become a leading expert on the content-free review. As Hugo Young put it, he is
the chief exponent of minimalism.
But the electorate is entitled to more than minimalism and will demand to know the details of Labour's tax proposals—the rates and bands of the new complicated graduated system that the Opposition intend to introduce.
Opposition Members did not like it when Mr. Keating of Credit Suisse First Boston estimated that as a result of their policy many couples without children and on below average earnings would be substantially worse off. He estimated that those earning only one and a half to two and a half times average earnings could, over time, find themselves paying up to £4,000 extra in tax—[Interruption.] Opposition Members cry out at that. If those figures are not correct, let them tell us what the correct figures are. They will not say, but some of their colleagues have. Last year, the hon. Member for Kingston upon Hull, East (Mr. Prescott) gave us a snippet when he was reported in Tribune as saying
It is not credible for Labour to suggest that our policies for full employment or our policies for investing in the Health Service, funded by taxation, free at the point of use, can be financed on a programme of low taxation. It can't and the electorate knows it can't.
We believe in low taxes. The Labour party believes in high taxes. Another difference is that we are prepared to say what our policy is, whereas the Opposition are not. Our policies are clear and unambiguous. The Bill consolidates the progress made in the last decade, and I commend it to the House.

Mrs. Margaret Beckett: Some aspects of the Bill we undoubtedly welcome because we have pressed for such changes over successive Finance Bills. I pick out in particular the concessions on workplace nurseries and on pools duty, for which my hon. Friends and I have called for many a long year, and we are pleased to see them delivered at last.
We are happy to welcome other proposals, such as the increased differential on unleaded petrol and the assistance for small companies which, as the Chief Secretary said, we shall debate later. There are other proposals that we observe with interest and without hostility, although perhaps with a degree of scepticism from time to time. I pick out, for example, the Chancellor's new savings scheme, TESSA. We are not hostile to that in any way, but whether it will increase savings or merely divert those that are already being made remains to be seen.
It seemed to me—it was also evident from the Chief Secretary's speech—that the most striking aspect of the Budget and of the debates that followed it was not the advent of TESSA, intended apparently to be the key feature of the Budget, but the return in all her glory of TINA, who was even more evident in the Chief Secretary's speech today. Hon. Members on both sides will remember TINA, the figure who highlighted the Prime Minister's first few years in office—"There is no alternative."
No great shifts in policy are reflected in the Bill. Indeed, there is precious little in it. Nor was there much in the Chief Secretary's speech to reflect or address the huge and growing problems of the economy. One would not think, from the Bill or from the right hon. Gentleman's speech, that a week ago the second worst trade figures in our history were announced. One would certainly not think


that that trade deficit included record imports of over £10 billion. Equally, one would not think that as we debate this measure we are awaiting what Samuel Brittan in the Financial Times last week called "black Friday"—the arrival of the next set of inflation figures next week, safely of course after the local government elections.

Mr. Hanley: rose——

Mrs. Beckett: No, I will not give way.
Not only does the Bill tell us little about those problems, but Ministers tell us little about the state of the economy.

Mr. Hanley: rose——

Mrs. Beckett: I told the hon. Gentleman clearly that I would not give way. I will do so later.
The Finance Bill tells us that the economy is in a mess and that the Government do not know what to do about it, except to reiterate that there is no alternative to the policies that they are following. Worst of all perhaps is not what the Bill fails to say about the problems that we are experiencing, but what it fails to say about the problems of the economy of tomorrow and of all our tomorrows. It addresses in no way the shape of the economy in 1992, let alone in 1993, 1994, 1995 or at any time in the future not bounded by the next general election.
We said when the Budget was launched that it was a Budget for the next 10 days rather than for the next 10 years. It is an increasingly moot point which of its forecasts and prescriptions will survive the next 10 weeks. When Ministers talk about the problems of the economy, as was evident from the Chief Secretary's speech, as opposed to their paeans of selective self-praise, they do so only to assert that those problems are purely temporary.
Ministers seem to have stopped—the Chief Secretary did not use the word once in his speech—using the word "miracle", or perhaps even that is temporary. Even so, the rest of the rhetoric is still there. They continue to talk about greater growth and about a new indicator for inflation. The Chief Secretary used that phrase, and I shall study it with interest to see whether it stands up any better than some of the other phrases that they have used. We have had a new description of levels of employment or unemployment. There has not been much about investment, except for misleading statistics on business investment, and nothing about research and development.
In common with most of the statistics that Ministers use about their record, they are highly questionable at best, particularly when we examine the whole period for which the Conservatives have been in office. The Chief Secretary said, unusually for a Minister, that it was right to look over their whole period in office. I shall remind the right hon. Gentleman of that when, in other debates, he quotes—as he no doubt will again as he has in the past—a set of statistics from 1981, another from 1983 and yet another from 1985, depending on the best and most selective period to choose. The Conservatives' record over their whole period in office looks nothing like as flattering as Ministers normally describe it.
Particularly worrying is the theme of the Chief Secretary's speech, which is that our problems are temporary and soon will he resolved. He was scathing about people who do not believe that there has been a

miracle—although he did not use that word today—and who do not believe that there has been an enormous underlying improvement in the economy.
I refer the right hon. Gentleman to the observations of Mr. Martin, the adviser to the Select Committee, who referred to the optimism that the Treasury and the previous Chancellor enjoyed for so long. Perhaps at this stage I should set the record straight by telling the Chief Secretary that my hon. Friends and I were not amused or critical of the Government's proposals on charities, although no doubt we shall debate them. We were amused that the Chief Secretary had dared to mention the name of the departed figure, the man who is not to be referred to except to be blamed for all the mistakes—the right hon. Member for Blaby (Mr. Lawson). [HON. MEMBERS: "Where is he?"]
Although the Chief Secretary may have omitted that, he referred to the claim relating to the background to the former Chancellor's remarks. So I direct him to Mr. Martin's observations about the special circumstances that the Government enjoyed in the late 1980s which created the appearance of greater strength than was there in the economy and which fed the optimism of which the Government have for so long been guilty.
When interviewed by the Select Committee, the Chancellor said that he did not know why the CBI had suggested, for example, that any improvement in the trade deficit might be temporary and that after improving it might deteriorate again. That was not quite the picture that was painted by the Chief Secretary, and was perhaps less than honest, if one dare say so, of the Chancellor.
Mr. Ward, another adviser to the Select Committee, is one of many commentators and forecasters, most of them using the Treasury model, to point out that, sadly, the most likely scenario is that, although the squeeze on inflation that the Government are presently undertaking might succeed in bringing down the balance of trade deficit, as soon as that squeeze is lifted, it is likely to deteriorate because of our propensity to import.

Mr. Hanley: How would the Labour party turn round the trade deficit? What import controls would be introduced?

Mrs. Beckett: The hon. Gentleman must have been reading some of the more hysterical contributions from the Paymaster General. We have made it crystal clear over and over again until we are bored with making it clear that we do not have the slightest intention of introducing import controls and—to save the hon. Gentleman from asking—we have no intention of introducing exchange controls either.
We recognise the Chancellor's problem and that he does not want to refer to the likely improvement in the trade deficit—if it improves, which we certainly hope that it will. The last thing that the right hon. Gentleman wants is for the public—he is not worried about the Select Committee or about hon. Members of whatever party—to realise that if his inflation squeeze works at all, the improvement may be short-lived. It is within that window of opportunity that the Government are hoping to call the next general election. I repeat that it is less than honest——

Mr. Neil Hamilton: rose——

Mrs. Beckett: It is less than honest for the Chancellor not to acknowledge the danger that the Treasury—and everyone else—has seen, no matter how ropey the statistics——

Mr. Quentin Davies: rose——

Mrs. Beckett: The hon. Member for Tatton (Mr. Hamilton) was first.

Mr. Hamilton: The hon. Lady is advancing a partially attractive argument because she appears to be saying that the Government are not squeezing the economy hard enough. In the absence of exchange controls or import controls, to what extent would her proposals involve either an increase in taxation or an increase in interest rates at this moment?

Mrs. Beckett: The hon. Gentleman seems to be suffering from a pre-speech brief saying, "For heaven's sake, ask this question irrespective of whether it is relevant or follows on from what has just been said." [HON. MEMBERS: "No."] Well, I do not know how the hon. Member for Tatton read into my remarks that I do not think that the Chancellor is squeezing the economy sufficiently. I shall repeat what I said in case the hon. Gentleman did not catch it the first time. I said that if the squeeze that the Chancellor is applying works—we all hope that it succeeds in reducing the trade deficit—allowing for a time lag, the minute that the squeeze is lifted, the balance of trade deficit will deteriorate again.
My point, which I am happy to repeat for the hon. Gentleman's benefit, is that that is the time scale within which the Government are hoping to hold the next election, pretending all the time that the improvement that they have created is long-lasting and that the balance of payments will not deteriorate again, although they must know perfectly well from their Treasury model that that is exactly what is predicted. As I have said, that is less than honest.

Mr. Quentin Davies: rose——

Mrs. Beckett: If the hon. Gentleman is seeking to intervene on the same point, I am not sure that it will be worth giving way to him——

Mr. Davies: rose——

Mrs. Beckett: All right, I shall give the hon. Gentleman the chance.

Mr. Davies: I am grateful to the hon. Lady for giving way. As she now seems to have accepted that the major economic problem that we face is that of inflation, will she take this opportunity formally to repent of the consistent errors of the Labour party throughout 1987 and 1988, when Opposition Members continually told the Government that interest rates were too high and should be brought down and that the fiscal surplus was too high and should be lowered? If those policies had been pursued, they would have exacerbated inflation.

Mrs. Beckett: I shall come to the point about 1987 a little later, and I hope that the hon. Gentleman will rest content until I get there. However, the Dispatch Box is not quite the place for the repentence of one's sins.
If we are to judge from what the Government say now and from what they are likely to say if and when the trade deficit improves—the point at which the Government

hope to have that window of opportunity—it would be wise for us to take a look at the Government's record on predictions and at how much reliance one can place on their word. I believe that it was Nye Bevan who said, "Why look into the crystal ball when you can read the book?", and I have been reading the book.
I do not want to be unfair to Conservative Members or to go back over their long period in government, so I shall go back no further than the last general election campaign. That must be fair. After all, in 1987 the Government had had two terms in office and that was the very point at which we were told that the economic miracle was in full swing and that we were ahead of West Germany and Japan. Therefore, it can only be fair to the Government to go back that far.
I shall take first the Government's statistics on inflation, which is one of the two most difficult problems that we are facing at the moment, and is what the right hon. Member for Blaby called the "judge and jury" of the Government's record. It makes interesting reading. During the election campaign and in their manifesto, the Government talked about pursuing the "conquest of inflation" and stated:
We will not be content until we have stable prices, with inflation eradicated altogether.
No wonder the Government look miserable at the moment.
By November 1987, five months after the election, the prediction for inflation in the fourth quarter of 1988, the following year, was 4£5 per cent. By March 1988, three or four months later, that forecast had improved and the forecast for the end of 1988 was 4 per cent. By November a little more realism had crept in and inflation for that same fourth quarter of 1988 was predicted at "a little over 6 per cent."

Mr. Norman Lamont: What does the hon. Lady think about the right hon. and learned Member for Monklands, East (Mr. Smith) who, at exactly the time to which she has referred, November 1987, said:
Now is the time for cuts in interest rates to stimulate the economy … Now is the time for a programme of well planned public investment to mobilise the unused capacity",
and called for a further stimulus and boost to the economy?

Mrs. Beckett: rose——

Hon. Members: Answer.

Mrs. Beckett: I am quite content to answer and have already told the Chief Secretary to the Treasury, who was in such a hurry with his quote, that I shall return to the question about what happened at that stage in 1987 and to the question about interest rates a little later. I am talking now about inflation in 1987 and about the record——

Mr. Stephen Dorell: But 1987 is relevant.

Mrs. Beckett: There is no need for the hon. Gentleman to try to conduct a dialogue from a sedentary position. If he wants to come to the Dispatch Box, let him do so, otherwise he should keep quiet. I assure the Chief Secretary that I shall refer to the point that he made. That is the assurance that I gave to the hon. Member for Stamford and Spalding (Mr. Davies), and the right hon. Gentleman knows that I always keep my assurances.
As I was saying, by November 1988 inflation was being predicted at
a little over 6 per cent.
for the fourth quarter of that year, although in the event it was 6·5 per cent. and, instead of the predicted 4 per cent. by the end of the year, it was 6·8 per cent. The forecast for 1989 that was given in the 1988 autumn statement was that inflation would peak at some point "in the middle" of 1989 before
falling back again to 5 per cent. by the fourth quarter."—[Official Report, 1 November 1988; Vol. 139, c. 824–5.]
That was in November 1988.
By March 1989 and the Budget, the Chancellor was saying that the outlook was for inflation to rise a little further over the next few months—not from 4 per cent. or 6 per cent., but from 7·5 per cent.—to 8 per cent. before falling back in the second half of the year to 5 per cent. in the fourth quarter and to perhaps 4·5 per cent. in the second quarter of 1990. I repeat, that was the prediction in March 1989.
I concede at once that the prediction was half right. Inflation did rise a little and then fall back a little, but what about the prediction that was made just over a year ago of 4·5 per cent. inflation in the second quarter of 1990? I know that you, Mr. Deputy Speaker, will readily recognise that the second quarter of 1990 is the quarter that we are now entering, when predictions are just a little different.

Mr. Tim Yeo: Will the hon. Lady give way?

Mrs. Beckett: No, not to the hon. Gentleman. That brings me to the autumn statement of 1989——

Mr. Yeo: rose——

Mrs. Beckett: I am not giving way to the hon. Gentleman—as he knows.
In the autumn statement of November 1989, the Chancellor—by this time, we are talking about the present Chancellor—predicted a further reduction in inflation.
The forecast last November was for 5·75 per cent. inflation by the fourth quarter of 1990. Alas, by March this year—only a month ago—the forecast had been revised again, to the following:
A significant fall is still some months away. The position will worsen noticeably before it improves—though I now expect that it may be a little over 7 per cent. by the fourth quarter of this year compared to the 5·75 per cent. that I had previously expected"—
only the previous November—
but I expect inflation to fall below 5 per cent. during 1991.
It is far from clear to me how any judge or jury could be expected to reach a verdict when the evidence changes with such rapidity. It is no wonder that Mr. Martin, who advises the Select Committee, stated that the Government have "nil credibility" on inflation.

Sir Peter Hordern: The hon. Lady started her speech, by saying that she would concern herself with the future—and she is now talking about forecasts. I am somewhat confused as I thought that she had ruled out any question of import controls and exchange controls. However, so far as we have been able to establish, the Labour party is in favour of lower interest rates and more public expenditure. The latest assurance from the right hon. and learned Member for Monklands, East (Mr. Smith) is of a

guaranteed minimum wage. Will the hon. Lady tell the House by how much she expects wages and salaries to increase to keep that pledge?

Mrs. Beckett: I am sorry to tell the hon. Gentleman that there is nothing new in what my right hon. and learned Friend said—it was in the recent policy review. As I recall, the effect of that policy will be an increase in wage rates of about I per cent. The answers to the hon. Gentleman's other questions—if they were questions and not assertions—have been given repeatedly from the Labour Front Bench, and will be the subject of my later remarks.
The Government's balance of payments record is another area of considerable difficulty at present. In 1987, the deficit was £1·5 billion. We were told then that that was of no consequence because it would be covered by our earnings on invisibles. We have not heard so much about invisibles of late. In the Budget of March 1988, the then Chancellor forecast an end-of-year deficit of £4 billion. By November 1988—about five months later—the forecast was not a £4 billion deficit, but £13 billion, although falling slightly in 1989 to £11 billion.
In the March 1989 Budget—again three or four months after the autumn statement—there was no change in the prediction for 1989, although the outturn for 1988 had been £15 billion rather than the £13 billion that was initially predicted. However, by November 1989 the result for that year was not after all the £11 billion that had been predicted six months before, but £20 billion, although—of course—that figure was predicted to fall to £15 billion in 1990. That was the Budget forecast in March this year.
Although, of course, Opposition Members hope that those predictions, for once, have some accuracy, and that that deficit will fall, I am bound to observe that far from suggesting a fall from £15 billion, the annualised rate for the first quarter of 1990 suggests a further rise in our trade deficit to more than £22 billion. The Treasury and Civil Service Select Committee drew attention in its report to the Government's observations that they would expect to see the balance of payments gradually moving back towards balance. It said:
This explanation and forecast is similar to that given at the time of our inquiry into the 1989 Autumn Statement." In other words, the Select Committee and the House have heard it all before.
The Government say that the present difficulties do not alter the sweeping claims that they have previously made for their economic success. I recognise that the Government now admit to making a mistake, although apparently only one little mistake, made in 1987. Here I come to the point of the Chief Secretary to the Treasury and of the hon. Member for Horsham (Sir P. Hordern). Following the stock market crash, the Government lowered interest rates. I am sure that it is pure coincidence that the one mistake to which the Government are prepared to admit is one that was generally accepted as a wise move, and one that was supported by the Labour party. I concede that we agreed with the Government at the time that it seemed wise for interest rates to be lowered temporarily because of the possibility of a slump. What we have never agreed with or accepted is the path that the Government continued to follow which led directly to the 1988 Budget and the tax cuts that were made in it. There is no doubt that if that is the only mistake that the Government have made—and I do not notice them


admitting to any more—it must have been a beauty as we are still feeling the effects and paying for it now. That will continue to the middle of 1990 at the best.
What is worrying is that sometimes Opposition Members have the impression that the Government really believe that that is the only mistake they have ever made. The Opposition argue that there have been others, the biggest being not the fact that the Government lowered interest rates in the autumn of 1987, but that they went on to add to demand by the huge tax cuts of 1988. They added to those tax cuts the grossly inflated rhetoric of the economic miracle—the stuff about Germany and Japan bringing up the rear. Those tax cuts were not only unjust, but a profound misjudgment of what our economy needed——

Mr. Quentin Davies: rose——

Mr. Neil Hamilton: rose——

Mr. Ian Taylor: rose——

Mrs. Beckett: I take the point raised by the Chief Secretary to the Treasury. We believe that those resources should have gone into a planned programme of investment in our economy. That is the choice that the Labour party would have made. Those resources were available to the Government. Sadly, they are not available now because the Government have used that money for tax cuts that have fuelled demand and the growth of credit in the economy.

Mr. Quentin Davies: rose——

Mr. Ian Taylor: rose——

Mrs. Beckett: I shall not give way again to the hon. Member for Stamford and Spalding (Mr. Davies). I have been speaking for 25 minutes and I am barely halfway into my speech. I may not give way for some time.
Apart from the Government's constitutional dislike of admitting that they have ever made a mistake, they have another important reason for refusing to accept the part that they played in causing our problems by the tax cuts of 1988. They do not want to admit that those tax cuts fuelled the explosion of spending and the demand for credit because they want to do it again. That is how they are hoping to win the next election—by either the promise or the performance of further income tax cuts.

Mr. Ian Taylor: rose——

Hon. Members: Give way.

Mrs. Beckett: I have given way on a number of occasions and I shall not do so again—if I do at all—until I have made substantially more progress.
The Government have tried to claim credit for trying to teach the British people that there is no such thing as a free lunch, but they are incredibly reluctant to apply that lesson to Government policy. The harsh reality is that we are paying now for the profligacy of 1988 with increases in mortgage rates, rents, the price of electricity, gas and water, prescription charges and bankruptcies, a collapse in the construction industry and, as sure as night follows day, inevitable increases in unemployment.
One of the shabbiest tricks that the Government have recently employed is that they have sought to pretend—as

they did in their evidence to the Select Committee—that somehow the economic squeeze that they are applying to squeeze out inflation does not bring with it, as they know it does, the expectation of a rise in unemployment. My hon. Friend the Member for Norwich, South (Mr. Garrett) challenged the Chancellor on that point in the Select Committee, but he refused to take it up. I hope that the Government are not pretending that if unemployment rises this year—we hope that it does not—it will be purely as a consequence of wage increases. They know that that is not true. Of all the commentators and forecasters who have examined the Government model for the economy, the only one who did not say that it implied an automatic increase in unemployment because of the squeeze was the National Institute of Economic and Social Research because it predicted a further change in the manipulation of unemployment statistics. It predicted nothing different about jobs, but something different about the unemployment figures. This morning the Confederation of British Industry said that it seems likely that many thousands of jobs will be lost, especially in manufacturing, because of the economic problems that we are now experiencing. It refers especially to the high cost of finance as well as of labour.
So there is no question but that one of the consequences of the policies of the present Government is likely to be an increase in unemployment, and it is clear, too, that what is happening on the wages front—the Governor of the Bank of England made it absolutely clear in his evidence to the Select Committee when he spoke about "administered" price rises is—that wage rises are still following price rises.
The Select Committee expressed a little surprise that the diagram previously in the Red Book of unit labour costs was not in this year's, but I suspect that it is because the diagram showed that, while inflation has slowly and steadily risen in the past two or three years, wage costs have stayed remarkably stable, and that it is only when people are faced with the impact of the most recent interest rate rises, of the poll tax and of the other price increases coming through this year that wage claims have begun to rise.
Although a number of hon. Members intervened while the Chief Secretary was talking about wage costs, I do not recall hearing very much from any of them last year when a number of directors of the companies that support the Conservative party and give it a lot of money gave themselves wage increases, not of 7, 8 or 9 per cent. but of 27 per cent. or 28 per cent. That was only last year. I understand that some have already begun to award themselves increases on a similar scale this year. Yet these are the very people who benefited most from the income tax cuts in 1988; they are the very people who benefited most of all because of that considerable cut in the top rate of income tax——

Mrs. Alice Mahon: And from the poll tax.

Mrs. Beckett: And they are the very people—I take my hon. Friend's point—who benefit from the change from the rates to the poll tax.
I recognise—the Chief Secretary was at it again today when talking about marginal tax and so on—that the Government claim that none of this matters because they have been generous to workers who are low paid. This claim is particularly difficult to substantiate if one looks at the overall tax burden—not just at income tax but at the


real impact on people's net disposable income of income tax, national insurance contributions, value added tax and the package of measures for which the Government are responsible and because of which the average household's tax burden has increased since this Government came to power.
I want to look, particularly because of the way in which the tax-exempt special savings account is described in this Budget, at what is happening under this generous Government, where all benefit from increased prosperity and the economic miracle, to the lowest paid of all. In the Budget, the Government refer to a group that they call moderate or relatively small savers who will save up to £150 a month or about £16 a week. They obviously regard these people as not especially well-off. I draw the attention of the House to a group of people who get very little attention in this place, particularly from hon. Members on the Government Benches—those who earn very low wages, from as low as £60 a week to £170 a week.
I have been following the detailed statistics for this group since spring 1988 when not only did we have these massive cuts in taxation which particularly benefited the best off but we had a massive package of reforms in social security. The figures are an average because they include average rents, average costs of travel and things of that kind, but they are figures from parliamentary answers and they show a particularly interesting comparison in the movement of incomes over the year and the marginal rates of tax to which the Chief Secretary referred. The figures that I have recently received from the Government are particularly illuminating. They show that someone in this low-earning bracket—the Government have deliberately fostered low earnings in their time in power—can have an increase in gross pay of £10 a week and see his net disposable income rise by as little as 55p. In one particular case, someone with a two-child family earning between £90 and £100 can experience a drop in income of 11p a week. That is a marginal tax rate, to pick up the Chief Secretary's phrase, of well over 90 per cent.
If we were particularly generous and took that whole spread of earnings, from £60 to £170—presumably, to get that kind of increase, someone would have to change his job—a married man with two children of four and six could have that gross increase of £110 a week and come out with just under £16·50 extra in disposable income—£16·50 gain for a gross rise in income of £110 a week. What was that again about marginal tax rates?
A single parent with two children presents a similar picture. By going into part-time employment with earnings of £20 a week, such a person would gain £8·10 of her £20 extra, but if she went into full-time employment and earned as much as an extra £40 a week she would still get only £9·21 a week more than she would receive on benefit—an extra £1·11 in net disposable income for a £40 increase in gross pay and the burden of full-time work, with no allowance made for any contribution to child care costs——

Mr. Quentin Davies: Explanation!

Mrs. Beckett: No, I would like to go through this comparison and finish the point. I do not need any explanation, I assure the hon. Gentleman. I am very familiar with these figures. Let me give him a little more explanation.
Let us take a family with two children. I have asked for a comparison to be made between their income now and their income in 1987 when these packages of tax and social security reforms were introduced. The House will, I know, be pleased to learn that this year, for the first time since 1987–88, the family are better off in cash terms, although in some cases by as little as 12p a week. That is a 12p increase in net disposable income over three years under a Government who have given us an economic "miracle". Of course, they are all worse off in real terms than in 1987.
If I take now the figures for a single parent with two children aged four and six, in cash terms those earning £60, £70 or £80 a week are worse off now than they were before the package of changes in 1988. If they are worse off in cash terms, they are substantially worse off in real terms.
I know that hon. Members on the Government Benches do not like criticism of the Government's record. There is an increasing and worrying tendency to equate criticism of the Government with disloyalty to the country. The Chief Secretary was at it during Question Time the other clay. The phenomenon is seen at its most extreme in the case of the Prime Minister. It began—although it seems hardly to have been noticed and certainly not much commented on—when the Prime Minister began to talk about "my Government", a phrase that I had previously heard only on the lips of Her Majesty the Queen. Then we got on to the use of the royal "we". Then we had gates to protect the Prime Minister from the admiring populace. Now we have the change in approach to the civil service, who are told that their loyalty is not to the Crown but to the Government of the day, and the increasing identification of the interests of the country with those of the present Government, which is percolating along the Back Benches.
What we seem to have, therefore, is a Government who do not like the attitude of the civil service and who feel that they must change its code of conduct, and who do not like the attitude of Opposition Members. We had that again today from the Chief Secretary, who thinks that there is something wrong with an Opposition who dare to think that they have the right to criticise the Government. We have seen the ultimate in the wish to ensure proper agreement with the Government's policies in that, although the Government have not actually tried to change the electorate yet, they are doing their best to manipulate who will vote. I understand that there is a well-funded campaign, headed by the hon. Member for Dorset, West (Sir J. Spicer), to persuade those who left the country as much as 20 years ago that it is their moral duly to prevent people who have been so unpatriotic as to stay here from exercising what we had previously thought was their right to change their Government.
I find it particularly offensive in this regard that the hon. Member for Dorset, West should apparently focus his campaign in South Africa, where he is telling white South Africans to vote Conservative because Mrs. Thatcher is the best friend that they have in the world. There would be no point in his addressing any remarks to black South Africans——

Mr. Andrew Mitchell (Gedling): On a point of order, Madam Deputy Speaker. A good many people wish to take part in the debate on the Second Reading of the Finance Bill. The hon. Lady's comments, while entertaining, are entirely irrelevant to the matter under discussion.

Madam Deputy Speaker (Miss Betty Boothroyd): The hon. Gentleman should leave it to the Chair to determine what is in order. If there were no interventions I am sure that the hon. Lady would finish her speech earlier.

Mrs. Beckett: You know me well enough, Madam Deputy Speaker, to know that I am about to relate my remarks directly to the proposals and policies of the Government. Despite the hon. Gentleman's intervention, however, I shall finish the point. The hon. Member for Dorset, West is appealing to white South Africans; it would be a waste of his time to appeal to black South Africans, who do not even have the vote in their own country, let alone in ours.
The other way in which the Government are attempting to influence the composition of an ungrateful electorate is through the poll tax. In theory it might be possible to separate registration on the electoral roll from registration for the poll tax, but this is certainly the nearest thing to reintroducing a link between the ability to pay and the right to vote that has been seen in this country for many a generation.
This brings me directly back to the Government's record on inflation. One of the many administered price rises imposed on us, as the Governor of the Bank of England said, by political decision, is the poll tax itself. I know that the Select Committee received differing evidence about whether it is the equivalent of increasing income tax by a ha'penny or by twopence, but it is clear that however it is quantified or explained it is yet another increase in the tax burden that ordinary people are trying to meet; and yet again, the only answer that they receive from the Government when they complain about that tax burden is that inflation can be dealt with only by interest rates and the price rises that they bring. I ask the Government again whether they will reconsider even now whether the use of interest rates alone is as successful as they have claimed, or whether the sheer bluntness of that instrument is not affecting its impact.
I draw to the attention of the Chief Secretary the report by the Treasury and Civil Service Select Committee which states:
The time which it has taken for successive increases in interest rates to restrain demand sufficiently calls into question the effectiveness of interest rate policy on its own.
The Chief Secretary quoted the Select Committee report. I shall read his remarks in the Official Report with care, but I am not sure whether he was entirely accurate. He said that the Select Committee had said that the role of reserve asset ratios had no impact on the growth of money, but in fact that was the Select Committee quoting the Red Book. So the Chief Secretary was quoting what the Government say, not what the Select Committee said.
The report suggests—in particular, the comments of Mr. Reading suggest—that the Government should consider alternatives to the use of this single instrument. The report recently produced by the Bundesbank—[Interruption.] I shall be happy to send a copy of it to the hon. Member for Richmond and Barnes (Mr. Hanley) so that he can read it. The report draws attention to the fact that everywhere in Europe and across the western developed world, except here and in Luxembourg, there is a use—in a variety of degrees and with various detailed arrangements—of some form of credit management, some means of influencing the extent to which banks are prepared to lend and add to the growth of credit—

Mr. Hanley: What does the report mean?

Mrs. Beckett: The hon. Gentleman should read the Bundesbank report and not waste the time of the House.
We have never said that the use of such instruments would be a replacement——

The Financial Secretary to the Treasury (Mr. Peter Lilley): rose——

Mrs. Beckett: The hon. Gentleman will have a chance to make his own speech.
We have never claimed that the use of such instruments would be a replacement for the use of interest rates. All that we have ever observed is that their use, even temporarily, might have allowed, and even now might allow, slightly lower interest rates than are necessary when the policy pursued is one of interest rates alone. That is a matter of particular moment at a time when the danger is that interest rates may have to be raised again.

Mr. Lilley: Can the hon. Lady point to any phrase in the Bundesbank report that shows that it is possible by using minimum reserve ratios to have lower interest rates than would otherwise obtain? I am sure that she cannot, because it does not say that.

Mrs. Beckett: It does not say as much in those terms, and I cannot find the precise reference now, but the report shows that Spain and France, by manipulating their credit instruments, were able to avoid a rise in interest rates.

Mr. Norman Lamont: The hon. Lady is wrong.

Mrs. Beckett: Perhaps we can pursue this some other time; I have not marked the exact passage in the report. It is no good the Chief Secretary shaking his head. It is not five minutes since the former Chancellor and the present Chancellor told us that no one in Europe uses these methods any more. We were told that they did not exist and that, in so far as they did exist, they had been abolished. The Bundesbank report clearly says that every country—Japan, the United States and every country in Europe except ourselves and Luxembourg—uses some form of this mechanism in a variety of ways. The report says even more clearly, in a clear contradiction of the remarks of the Chief Secretary, the Chancellor and the former Chancellor, that it is not true that the use of these instruments is being abandoned. They are being refined and made more effective. Further, the report suggests that if there is to be progress towards economic and monetary union, some measure along these lines will have to be considered in every country.

Mr. Norman Lamont: On a point of accuracy, the previous Chancellor argued not that these instruments were not used but that they were not an alternative to putting up interest rates. He argued that reserve asset ratios were merely an instrument by which interest rates were manipulated. I wonder whether the hon. Lady has read the remarks made this week by the president of the Bundesbank who has called into question the use of reserve asset ratios throughout Europe and who says that all Europe should consider getting rid of them—they are becoming redundant.

Mrs. Beckett: I have not read the report of that. The report to which I am referring was published only two weeks ago, so perhaps the Bundesbank needs to sort out what advice it is giving the rest of the world—


[Interruption.] I am quoting from a report published by the Bundesbank in March 1990. If, in the third week of April 1990, the Bundesbank is saying something different, I shall study it with considerable interest. I remind the Chief Secretary of how he misquoted the Select Committee's report earlier, so perhaps all these reports seem to have a different flavour depending on which party uses them.

Mr. Quentin Davies: rose——

Mrs. Beckett: I cannot give way; I have spoken for too long already.
I turn now to the impact of interest rates on investment decisions. I was amazed to see—I note that the Select Committee was, too—that the Governor of the Bank suggested that the level of interest rates was not particularly important as an influence on investment decisions, although there were exceptions. Unfortunately, that does not agree with reports from the engineering industry, the CBI or a variety of sources. Recent reports from Peat, Marwick, McLintock, from the senior receiver, and from Barclays bank and the Midland bank suggest that these difficulties are having a serious effect on the Government.
I note also that the Select Committee remarked on the difficulties experienced because of the poor quality of statistics available to the Government. That is rich in irony: the Government have sown the seeds and they are now reaping the whirlwind. They have cut down the signposts and now complain that they do not know where they are. Here, too, the scale of the problem is alarming. I note that in his report to the Select Committee Mr. Martin says that the errors in the Government's statistics are "beyond the pale". Sir Douglas Wass, not so long ago Permanent Secretary to the Treasury, complained that as a result of economies, industrial statistics in Britain are inferior to those of almost all our competitor countries.
But although the signposts in the form of statistics may be missing, the real economy tells us all too clearly what is happening. There have been cuts in the construction industry; a fall of 40 per cent. in starts was announced a few weeks ago. At long last British Rail has recognised that it can no longer square the circle of squeezing the consumer directly to fund investment. There has been a predicted fall in the Government's phoney measure of business investment, in which investment in casinos is seen as just as valuable as investment in manufacturing. There are problems with output and imports; a downturn in the balance of payments is predicted based on a presumed drop in those imports. Mortgage rates are at their highest ever. We have a record manufacturing deficit and trade deficit.
The Government have utterly and comprehensively lost their way. The Chief Secretary told us that no one apart from the Opposition believes that. Let me quote from the House Builder magazine, again of March 1990. The director of the House Builders Federation says that these
are signs of a Government in terminal decline. It has lost the ability to take sensible, pragmatic decisions, it is afraid of its own shadow, but contemptuous of important groups and industries whose support it needs.
The Government seem to have made the elementary mistake of believing their own propaganda and of believing that they have performed a miracle. The Greeks call that hubris. It is certainly being followed by nemesis. The way in which the Government are approaching the

issue is our greatest charge against them, the Budget and the Finance Bill. Even now there is no evidence that the Government have the wisdom or the foresight to invest what is left of our oil wealth in training, industry, civil research and development, and in the engines of growth that are driving our competitors further and further ahead every month and year. These are the policies which are needed for long-term prosperity. These are the areas in which the Government are still making cuts.
In the race to 1992 our competitors are three quarters of the way round the track and we have not even left the starting block because we are still busy listening to the team captain claiming that the tactics and techniques of the other runners are wrong. We are not even in the race. We are not running in the race because we have a Government who have run out of ideas and of steam, and who are fast running out of time.

Mr. Terence L. Higgins: The task of a Chief Secretary on the Second Reading of the Finance Bill is never easy. Although he may spend some time discussing the general economic position, he inevitably spends quite a lot of time discussing individual clauses in the Bill. On the other hand, the House traditionally tends to concentrate very little on the clauses and very much on the general economic position, and in particular to consider whether it has changed between the time of the Budget speech and the Second Reading of the Bill. The Budget looks sometimes better and sometimes worse than it did initially.
This year the Budget looks much the same as it did on Budget day, for the simple reason that the overall economic position has been confused and obscure. Inevitably that reflects the fact that we are suffering severely from the problem of inadequate economic statistics. In the report of the Select Committee, which I am glad to say was not only unanimous but on which there were no divisions, we stress strongly how important it is to get the statistics right.
The debate so far has dealt at length with the position in 1987 after the stock exchange crash. I do not think that there is any doubt that mistakes were made at that time. I think that that is generally recognised on these Benches and on the Opposition Benches, where even more reflationary measures were advocated. We live now with the consequences of those misleading statistics and the actions which were mistakenly taken upon them. That is now notorious.
I do not think, as the hon. Member for Derby, South (Mrs. Beckett) suggested, that it was a question of what happened on interest rates; she would assert that it was a problem of tax cuts. Even after the tax cuts at that time the Budget surplus was still 10 times bigger than any surplus achieved under a Labour Government. Therefore, I do not believe that the hon. Lady's argument was right. None the less, the fact that stimulus was imposed on the economy at that time has caused serious problems. The Select Committee, in its report, draws attention to the possibility of using the asset price index as an additional lead indicator of what is happening in the economy. If we had paid attention to that at the time, I believe it would have been helpful.
We are still suffering from the statistical problem. At the time of the Budget the public sector debt repayment


was anticipated to be £7 billion. We now know that the estimated outturn, after only about a month, is £8 billion. At one time a difference of £1 billion in the public sector debt repayment or borrowing requirement would have been regarded as a major change in economic policy, yet that is now the difference being thrown up by the statistics within a few weeks. That brings out strongly the problems we are suffering.
The latest balance of payment figures have been referred to. The biggest deficit ever shown has led to very little reaction in the City because I do not believe that the City thought the figures were right. Indeed, I find the figures in conflict with what we know is happening in the high street and the market. By now it ought clearly to have come through into the import figures or, on the other side of the equation, into the export figures when the exchange rate over the last year has gone down 10 per cent.
As the Select Committee says, it is essential to put more resources into getting better statistics. As the Chief Secretary courteously said, there has been a team effort between the Select Committee and the Treasury to try to bring that about. We have had the Pickford report and an action plan to improve matters. However, further action must be taken urgently. The disadvantages of not spending money on it, compared with the potential benefit, are very great.
What worries me also—this came out in the autumn statement report of the Select Committee—is that almost always we find that the turning point errors in the forecast are very much bigger than the errors when there is an upturn or a downturn. It is when the economy turns round that the errors are great. We are at the turning point because all the Chancellor's measures are deliberately designed to get the economy back on course.
Taking everything I have said into account, I fear that the economy is probably slowing down a great deal more than the statistics or the forecasts suggest. Therefore, the Chancellor was right in his Budget to do very little to change the overall balance in the economy. A further massive move, such as some commentators in the City suggested, would have caused a real danger within a few months of a massive recession which it would have taken a long time to dig ourselves out of.
One lesson from 1987 is that when a mistake is made, largely because of bad statistics, it takes years to get the position right again. My hon. Friend was right in his Budget judgment, and he was right also in seeking not to raise interest rates further.

Mr. Ian Taylor: rose——

Mr. Higgins: I shall give way very briefly because I believe that Privy Councillors should not speak for more than 12 minutes.

Mr. Taylor: My right hon. Friend has made an extremely important point. Does he agree that a further tightening of fiscal policy in the Budget, as was urged by the City and by Opposition Members, would not have taken effect until the end of this year or the beginning of next year when we might already be in a severe recession?

Mr. Higgins: I agree very much with my hon. Friend. The point which emerges is that my right hon. Friend the Chancellor has a more difficult task, because of all the conflicting signals, than perhaps any of his predecessors.
The other major problem is unit labour costs. The Select Committee published a chart, provided by the Treasury, which was not in the original Red Book. There are real dangers for our competitive position because of international relations. The fact that unit labour costs are expected to rise again is of grave concern against the background which I have just described. Although the position is vastly different in many respects from 1980, with public expenditure a much smaller percentage of gross national product and a public sector debt repayment of £8 billion plus compared with an £8 million deficit in 1980, none the less if the Chancellor's deflationary measures, which in my view are stronger than are generally supposed, run into inflationary wage settlements, we will be in danger of getting back to the position of 1979–80 and unemployment could rise substantially. We have made great progress in reducing unemployment in recent years, but the position is now dangerous. That is why it is so important to take into account what is happening with wage settlements. Overall, I believe what is happening is right.
I am anxious to allow time for others to speak because a large number of hon. Members are waiting to do so, but I shall say a word or two about the relationship between monetary and fiscal policies. Up to now I have not taken the view that my right hon. Friend the Chancellor of the Exchequer or his predecessor were guilty of a one-club policy. It is not the case that, up to now, only interest rates have been used. That policy has been backed up by a tight fiscal policy, and the two have been working together. However, as the Select Committee points out, we need a better measure of fiscal stance than we have had so far. There is considerable obscurity about that at present.
However, the Committee stresses strongly that there can often be a dilemma about the use of interest rates. Sometimes, one might have to move them upwards for exchange rate stability while, at the same time, one should move them in the other direction to control the domestic economy. That is currently true and has always been true. There is not always a dilemma; sometimes the interest rates should move in the same direction for both reasons.
If we join the exchange rate mechanism, as everyone expects—the Governor of the Bank of England rightly said that the only barrier to our joining was the differential inflation rate between this country and Europe—interest rates will necessarily be dedicated to the maintenance of the exchange rate within whatever range band is selected. In cases of conflict, the interest rate would not be available for managing the domestic economy. Therefore, it will increasingly be necessary to adopt a more flexible approach towards fiscal policy, as well as using interest rates.
While I do not think that the one-club gibe has been a legitimate attack on the Government until now, we shall need an interest rate putter in relation to the exchange rate. However, if we try to use that same club for driving the economy, we shall not hit the ball very far. Therefore, our approach to the problem will need such a change.
I believe that, in the immensely difficult position in which he finds himself, the judgment of my right hon. Friend the Chancellor of the Exchequer has been right. We all wish that he is successful in his policies. We say in our
report that he has taken the view that what is being done at present is sufficient to put matters right. Further dramatic changes would not be either wise or necessary.

Mr. Robert Sheldon: It is always a pleasure to follow the right hon. Member for Worthing (Mr. Higgins), particularly when he produces one of his best reports. The reports are bound to vary considerably because of the wide range of membership of his Select Committee and other factors. However, this is undoubtedly a valuable report, which I read with great interest.
I take fully the right hon. Gentleman's point about statistics. The Government were wrong to try to save money on that crucial matter. I understand full well the comments which have been made by the Chief Secretary. Treasury Ministers always make such comments, belittling and scorning statistics, but when it comes to making decisions, it is those statistics that they use, because they have nothing else to use. They can rely only on their own guesses or the figures produced for them. In my experience, they use them to a much greater extent than they confess.
The Chancellor of the Exchequer has been prepared to listen. In his Budget statement he went into great detail in producing a reasoned defence of interest rates as the only practicable weapon. I welcome such dialogue, which we have not generally had throughout this Government's lifetime. It is important for the Chancellor of the Exchequer—I give him full credit for it—to engage in such dialogue so that he can learn from some of the experiences and arguments of other hon. Members. That is the proper way to deal with such matters. I am sorry that the Chief Secretary to the Treasury did not follow that way of handling such matters, but I hope that he will in future.
I do not agree with the Chancellor of the Exchequer about interest rates being the only practicable weapon. The suspicion that we have had about the present policy rests on the fact that it was on 3 June 1988—nearly two years ago—when interest rates commenced their upward drive. The purpose of that was to slow down consumer demand. The Prime Minister became involved in this matter when she spoke on 30 June. The Leader of the Opposition asked why the right hon. Lady had to inflict the increased interest rates on British industry and British home buyers. Her answer was:
To keep downward pressure on inflation."—[Official Report, 30 June 1988; Vol. 136, c. 520.]
We have had two years of that, but it has not been successful. Inflation has been going up and up. Therefore, this policy has had little effect on inflation and little observable effect on the demand for credit. One estimate is that £150 billion of extra credit has been created during those two years. That was a complete reversal of the Government's intentions. So far from credit being reduced and demand slowing down, they have increased.
Previous Chancellors of the Exchequer may have been deficient in many ways, but one thing they all knew was how to bring about a reduction in demand. It is a simple trick. All one has to do is to raise taxes or, in the old days, use the regulator and, as further measures, restrict credit and put up interest rates. Almost from day two, one could see the spending level decline. However, the Chancellor of the Exchequer did not agree with that way of handling such matters. He said:
fiscal policy is not, in my view, a flexible instrument which should be altered to meet short-term contingencies.

Fine-tuning fiscal policy is not only disruptive to the public sector, to business and to taxpayers, but its effects on the economy are uncertain and often destabilising."—[Official Report, 20 March 1990; Vol. 169, c. 1015.]
I am sure that if he were to find himself back in time to two years ago, he might have a different view on that. There is no question but that during the past two years he has not succeeded and there are political as well as economic problems.

Mr. Neil Hamilton: The right hon. Gentleman will be aware that the tax cuts of the 1988 Budget amounted to about £4 billion. The amount of credit generated by the reduction in interest rates was £40 billion. By how much would he have recommended that the Chancellor increase taxation in 1988 in order to choke off the inflationary impetus which that gave?

Mr. Sheldon: We must not take too simplistic a view. We must take into account such matters as people's perceptions. Once they found that the brakes were being taken off, people got into a spending spin that lasted longer than it should have done. A sum of £150 billion credit is a large amount to have accumulated in those two years. Now that the two years have passed we must ask why Conservative Chancellors of the Exchequer are totally unable to do what their predecessors did so effortlessly, bring about a reduction in demand and create what might be a soft or hard landing. The trouble now is that we have had no landing. Two years have gone by and we have not landed yet. They have been unable to do so because, once again, they are impaled on a dogma, which is what rules such matters. Changes in taxation under the Government are said to be a one-way movement downwards. They cannot even be used to smooth the flow of a changing economy. That is one of the important factors. That was why the Conservative party introduced the regulator. It is not necessarily fine tuning; there has been more fine tuning on interest rates than on taxation. They have tried to reduce the levels of demand without making changes in taxation.
The Government rely on interest rates, but they do not bring about changes next week or next month; they work on a long-term perception of what will happen. Taxation takes money out of the pocket and has an immediate effect. The Chancellor found that he could not use credit controls or taxation, so he was left with interest rates. Now, for the first time in recent years, he is left only with exhortation. Given the civilised behaviour of this Chancellor, it is a mild form of exhortation—somewhere between exhortation and advice. He said in his Budget statement about extended credit:
I believe that the financial institutions would be wise to reconsider their policy, and I hope that the subject will be covered in the code of practice …"—[Official Report, 20 March 1990; Vol. 169, c. 1012.]
It is all very well asking the financial institutions to be wise, but their mail shots continue to pour into our homes. Recently my bank manager even berated me for not borrowing. A good customer is one who borrows, as that is to the advantage of the bank or finance house.
Another fallacy is that interest rates reduce the demand from everybody. Many people do not have high mortgages. Indeed, many have savings and they will benefit from high interest rates. There is no reason why they should reduce their spending. The great advantage of using the tax system for smoothing the ups and the downs of economic fortunes is that that affects everyone who


spends. No one objects to tax changes downwards, but within that direction there should be fluctuations to take account of the position facing the Chancellor.
The problem facing the Government is that they are trying to be obedient not to the demands of the economy but to the needs of the election and the opinions of the Prime Minister. Although they may be cursing the fate that led them into this position only two years from the next election, they will have to live with that. They did not take the necessary measures two years ago when they had plenty of time to do so. Although they could have engineered a short-term recovery in time for the election if they had started from the position of 3 June 1988, when they first diagnosed trouble, they have now left it too late. They cannot rail against fate. They were left with plenty of time for the usual economic election tricks. In fact, surprisingly, fate has, in limited terms, been rather kind. Pay increases are running at about 9·5 per cent.—very high, but only at about the same level as last year. However, inflation is now approaching 10 per cent.
Some people decry the inflation figures in pay settlements. Sam Brittan's words are especially colourful—he insults what he calls idiot inflation figures. However, whether or not they include mortgage relief, the figures assess the spending of the family and they lead to pay increases. If the Government wish to reduce inflation, they need to take account of those factors over which they have some control, and that includes interest rates. Indeed, it appears that, however bad the trade or inflation figures, or however bad they might become, the game of playing with one club has just about run its course. The next step—if, unfortunately, one is needed—would be to choose between letting the pound go, doing a U-turn on taxation or introducing some form of credit controls.
Of course, there are those who think that the Chancellor has the ultimate secret weapon—entering the exchange rate mechanism. They say that if we do that interest rates will come down, the pound will be steady and that, although there will be problems in the long run, that will take Britain to the other side of the general election. Meanwhile, they think that the short-term effects will be good. There will be a shock to companies that cannot increase pay because there is no prospect of devaluation. Trade unions will learn that new rules have come into play that will limit their wage claims.
Let me consider the role of companies and workers. If anyone really believes that companies and workers will be disciplined by the ERM, they are even more out of touch than the Government. After all, we have covered the same ground before. Almost 20 years ago, there were those who said that entering the Community would provide a shock; that Britain would have to face reality. Some 10 years ago there were those who thought that monetarism and sterling M3 would provide a shock. They held to the lofty theory of rational expectation—the rational expectation that trade unions would enter negotiations saying, "Because sterling M3 is a bit too high, we will not put in much of a wage claim." What nonsense. Only the Government could believe that. The rational expectation that I and many others had was that that would prove to be nonsense. Trade union leaders and management did not believe it, and they were right.
I agree that we should join the ERM, although my reasons for saying that are largely political in the context of a Europe in which we cannot for ever remain a dissentient voice. When we join the ERM, there will be a honeymoon period of six or nine months, and then unless fundamentals are changed there will be a forced devaluation of the pound. In political terms, that could be difficult for the Government. They have to make a judgment on the right timing and they may have little control over that. My advice to the Chancellor, for what it is worth, it to do the proper thing: act like a Chancellor, enter the ERM, and make use of his fiscal and credit control weapons. He must remember that if he gets it wrong he will be to blame, not the Prime Minister.
I am worried about investment. With 25 per cent. capital allowances, there is no longer a great deal of incentive to invest. If a company buys a machine for £1,000, the next day it will be written down to £750. That is serious because it means that companies are having to borrow money at high interest rates, and with depreciation being wholly out of line with the worth of the machine. That could result in serious cuts. I am sure that the Confederation of British Industry is right to highlight that important factor.
The Chancellor could have done something about that. A 15 per cent. interest rate acts differently on different people. For an individual, there is a problem with the mortgage. For those with savings, it will improve income. For an expanding industrialist, it hits very hard. Not only is the level of capital allowance less than the actual depreciation, but the industrialist must also find a large sum of money in a market that is uncertain because of the uncertain future of the economy. The Chancellor could have dealt with those matters. If he was so optimistic about the future, he could have said that for this year only capital allowances would be improved. That would have had a strong effect. He could have judged the right level to encourage the sort of investment that could have been afforded. That would help industry at a time when it is under pressure.
The invisible earnings have shown us that only manufacturing industry will save the country, yet we have treated it abominably, shabbily and disgracefully. It is to manufacturing industry that we must now look, and it is time that we started looking after its interests.

Mr. Neil Hamilton: I must admit that I had some difficulty in understanding the logic of the right hon. Member for Ashton-under-Lyne (Mr. Sheldon). If he agrees with the hon. Member for Derby, South (Mrs. Beckett) that the rapid reduction in interest rates following black Monday in 1987 was substantially responsible for the credit boom, I do not understand why that theory does not work in reverse and that credit is discouraged when interest rates are increased sharply. The right hon. Gentlemen seems to have the odd idea that we should not have increased interest rates and that the economy could have been calmed down by some increase in taxation, when to match the volume increase in spending which has occurred in the past few years, the increase in taxation that would have been required to substitute for rises in interest rates would have been absolutely colossal and, I have no


doubt, quite unacceptable. I do not believe for a moment that any Labour Government faced with such a problem would ever have been able to do that.
I shall start my speech with a text, as the rest of it may sound a little like a sermon:
Let us admit it frankly as a business people should.
We have had no end of a lesson, it will do us no end of good.
Those were lines written by Kipling on the Boer war, but I want to apply them to the experience of the Government in the past few years in what I hope to be the temporary abandonment of monetarism.
I was heartened by the speech of the hon. Member for Derby, South as it betrayed no understanding of the causes of the problems that the economy poses for us today, and certainly showed no idea of what to do about it. That bodes well for us politically at the next election, whenever it will be.
I hope that Conservative Members, at any rate, now recognise the problems that have been caused and the reasons for them. I believe them to be threefold: first, the end of overfunding; secondly, the abandonment of broad money targeting; and, thirdly, the fixation with fixed exchange rates, particularly following the Louvre agreement and the unofficial peg with the deutschmark up to early 1988.
It would be as well for us to admit that at that time my right hon. Friend the Prime Minister was right. She faced a Chancellor who took a different view of the role of monetary policy, and in particular the role of exchange rate targeting. There was a public row when the Prime Minister was regarded or accused, as she always is, of being intolerant, dogmatic and handbagging Cabinet Ministers round the table in the manner of "Spitting Image". But she was defeated by the then Chancellor, my right hon. Friend the Member for Blaby (Mr. Lawson), and had to retreat, and what a disaster it was for us all.

Mr. Nicholas Budgen: My hon. Friend ought to remember also that she was undefeated by the 1922 Committee, who told the Prime Minister that the position of the Chancellor of the Exchequer was unassailable in the Tory party at the time.

Mr. Hamilton: I know nothing of the workings of the 1922 Committee, which is a mythical body which I seldom attend.
The myth of the dictatorial Prime Minister is hard to dispel. But when the Prime Minister is being accused similarly in other areas of policy, it is as well to recognise that perhaps the truth is different.
On 30 January 1985 my right hon. Friend the Member for Blaby delivered the following judgment:
I have never believed in intervention in the foreign exchange market as a way of life, still less as a substitute for firm fiscal and monetary action.
How correct he was and how that has been proved by the experience of the past two years.
Having started out very successfully in our fight against inflation by targeting broad money and having no exchange rate target, we reversed our policy and did not target broad money and had an exchange rate target. The end of overfunding meant that we could no longer be confident of meeting broad money targets by selling gilts to neutralise the effects of high bank lending, and thereby denied ourselves the opportunity to bolster our anti-inflationary policy. I remember agreeing with my hon.
Friend the Member for Wolverhampton, South-West (Mr. Budgen) at the time, but my voice may not have been heard as he is far noisier than I am.
The second error was that we attached ourselves to a policy of stabilising exchange rates and managing the global economy. My right hon. Friend the Member for Blaby is a man of some distinction and considerable abilities, but managing the global economy was a bit much even for him. But he enthusiastically adhered to that policy following the Plaza reports of 1985. I believe that the rot set in at that moment because our domestic monetary policy was compromised to sustain the exchange rate of the dollar. There was a significant increase in the rate of bank lending to the private sector which trebled in three years. The rate of growth of that lending doubled in the same period.
Paragraph 58 of the Treasury and Civil Service Select Committee referred to the massive expansion in broad money in the period since 1979. It stated:
Broad money (as measured by M4 definition) has increased dramatically from £98 billion to £423 billion, that is by over four times. Over the same period nominal GNP has increased by 157 per cent. with real GDP rising by 25 per cent., the rest of the increase representing inflation. We take the view that the rapid monetary growth has contributed to the United Kingdom's high rate of inflation.
I believe that judgment to be correct.
The Treasury argues that broad money targeting is no longer appropriate in deregulated markets, but I do not believe that there is more than a grain of truth in that. It may well be difficult to ascribe particular numbers to the broad money measures, but it is a long step from that to say that those measures mean nothing at all. I believe that we must return to targeting broad money if we are to be more successful than we have been in the past few years. I do not believe that MO is a valuable predictor of what the economy will do. I believe it to be a coincident indicator, not a leading indicator, because it ignores inflation of asset prices and the diversion of domestic demand into imports in an overvalued exchange rate.
The principal cause of the ills with which we are so painfully having to grapple arises from the policy of concerted intervention in foreign exchange markets. In 1986 that intervention increased M3 by £181 million In the three months following the Louvre agreement on 21 February 1987 there was a massive increase in intervention and the extent to which that fed through into broad money expansion. From that increase of £181 million for the whole of 1986, the month of March 1987 produced a growth in M3 of £946 million, which increased in April to £1,750 million and in May to £2,861. Interest rates then came down—enthusiastically supported by the Labour party for which interests rates are too high in all conditions and at all times—to 9 per cent. In June 1987 bank lending was up 32 per cent. on the previous year, and in July it was up 63 per cent. on the previous year. That caused a small increase in interest rates to 10 per cent.
Following black Monday, interest rates came down to 8·5 per cent. and we all shared the misapprehension that the consequence of black Monday would be the possibility of the economy plunging into recession. We all overestimated the effect of share prices and underestimated the effect of property prices. So we all have to accept a share of the blame for that error of policy.
At that time domestic monetary policy should have been tightened severely, but because of our fixation with maintaining a pegged exchange rate, particularly against


the deutschmark, we reduced interest rates, when, if anything, we should have been increasing them, to the inappropriately low level of 7·5 per cent. in early 1988. That led to massive intervention which boosted broad money growth when it should have been slowed.
I believe that the present fixation with the exchange rate mechanism of the EMS will simply cause us to repeat the mistakes. I should like the Government to say that there is never a right time for us to join the ERM because I believe that it is a chimera. The more we follow these false gods, the less likely we are to keep to the true monetarist path which is so eloquently and picturesquely defended by my hon. Friend the Member for Wolverhampton, South-West.
Joining the ERM is no soft option. We have a choice. Either we can use interest rates to stabilise the currency, in which case the economy will go up and down, or we can stabilise the economy, in which case the currency will go up and down. There is no way of wishing away that distinction and that choice.
The level at which the argument for joining the exchange rate mechanism is advanced—certainly by the Labour party and also by the hon. Member for Berwick-upon-Tweed (Mr. Beith) on behalf of the SLD—does not do justice to the serious fundamentals of the controversy.
There are structural differences between economies that cannot be magicked away by the philosopher's stone of the ERM. There are psychological differences between people and the way in which they respond to different economic stimuli. They mean that at whatever rate one goes into the mechanism—if the decision to do so is taken in due course—almost by definition divergences will occur swiftly.

Mr. John Watts: Does my hon. Friend agree that we could expect to enjoy German interest rates and levels of inflation only if the British people had the same in-bred fear of inflation as the German people?

Mr. Hamilton: I entirely agree with my hon. Friend. As my hon. Friend the Member for Wolverhampton, South-West has said on many occasions, the British people are wedded to inflation. They love it when it is high. It is only the contraction that is necessary to cure it that is disliked, as Conservative Members are finding out to their cost now.

Mr. Budgen: Does my hon. Friend agree that the 1922 Committee performed a signal and excellent service to the British nation by demonstrating, at a time when inflation was being furiously stoked up, how grateful it was to the stoker up?

Mr. Hamilton: My hon. Friend is being mischievous. I shall not respond to that invitation to join him. His career is behind him and mine lies ahead of me.
The structural and psychological differences to which I referred would make some countries more prone to inflation than others and mean that, if we joined the ERM, ultimately there would be a confrontation between the requirements of domestic monetary policy and those of exchange rate management, which have brought us to our present state of difficulty.
To some people the ERM is a totem, a lodestone of European attachment. It is one which, I am glad to say, I

have never shared. Others say—and it is at least a semblance of a respectable argument—that joining the ERM would show a determination to fight inflation. However, if the fundamentals of economic policy are wrong, that position will become unsustainable in due course.
In our entusiasm for returning to fixed exchange rates, we shall repeat all the mistakes that we made throughout the 1960s and 1970s. We shall return to the days of sterling crises and all the political problems that they caused. I have recently read the account by Lord Wilson of Rievaulx of the Labour Government of 1964–70, which I recommend to right hon. and hon. Gentlemen. I particularly recommend the passages that refer to the period of devaluation in 1967. On page 448 he gives us this account of his difficulties:
As the foreign exchange markets opened for a new week, they showed themselves in a highly neurotic condition; any rumour, any press article, however well-intentioned, could cause millions of pounds to swing for or against any particular currency.
One can see the same thing happening now. An incautious word by the Prime Minister's Parliamentary Private Secretary in the Tea Room might set off a run on the pound. Any such remark in those difficult circumstances can produce tremendous political problems.
In his Lord Mayor's Banquet speech at about the same time, Lord Wilson said:
Not the least of my difficulties was what words to use about sterling which would be true and at the same time not a signal to speculators.
What a moral hazard for the Prime Minister of Britain to be in. He did not say which of those two options he elected to take up, but Conservative Members can guess.
There may be a right time for us to join the ERM, but that time would not survive for long. A divergence would soon occur that would falsify the whole basis of the assumptions on which entry took place.

Mr. Ian Taylor: Will my hon. Friend give way?

Mr. Hamilton: No. I should like to give way to my hon. Friend, but I am aware that I am taking a lot of time in the debate. I do not wish to be as self indulgent as the hon. Member for Derby, South.
The exchange rate mechanism is a means of subsidising German exports and now German reunification. It is an attempt to impose on the British people a new kind of poll tax—a Pöhl tax. The British people will pay to underwrite the inflationary costs of the exchange of ostmarks for deutschmarks at a wholly unrealistic rate. We could learn from history, although we do not often do so. We can look back to the period in 1925 when we went back on to the gold standard at an inflated rate of exchange, when British prices were 10 per cent. higher than German prices. Keynes, whom I do not often quote in support of my theories, in a book called "The Economic Consequences of Mr. Churchill", said that Churchill was
committing himself to force down money wages and all money values, without any idea how it was to be done. … If everyone was to accept a similar reduction at the same time, the cost of living would fall, so that the lower money wage would represent nearly the same real wage as before. But in fact there is no machinery for effecting a simultaneous reduction … Deliberately to raise the value of sterling money means, therefore, engaging in a struggle with each group in turn.


We should be back to exactly the same confrontations in industrial relations which prices and incomes policies and all their works brought and from which we freed ourselves in 1979.
I regret that I do not share the fashion or fad for the ERM which many other candidates for the leadership of our party espouse. I lay my stall out before my fellow Conservative Members. If, in due course, there is a contest for the leadership of our party, at least one person will follow the lines that our Prime Minister has so stalwartly followed in recent years. I very much hope that she will continue to do so.

Mr. A. J. Beith: It is always a delight to see the theologians of monetarism coming out to take the Government to task. But they met their Waterloo during a previous session of the Treasury Select Committee, before its earlier reports. The Committee saw fit to recount that important exchange in our report in paragraph 56. We quoted the present Chancellor of the Exchequer who said:
You answered your own question yourself, Mr. Budgen, when you said that used to be the theory in your judgment, the Government may have followed some time ago. It certainly has not been the theory that the Government have followed during any period I have been in the Treasury.
Those were harsh words for some members of our Committee.

Mr. Budgen: They are true.

Mr. Beith: Of course, they are acknowledged to be true.
I agree with the hon. Member for Tatton (Mr. Hamilton) that regard should always be had to important indicators, whether monetary or asset prices, and with some other points that he made. However, he is wholly wrong in supposing that the exchange rate mechanism is a system of entirely fixed exchange rates. It manifestly is not. He also suggested that it would damage our economy. On the contrary, it offers us the opportunity of lower interest rates without losing all discipline. If there is one area of agreement between us it is that there should be some measure of firm discipline on inflation. I shall return to that point in a moment.
The Finance Bill is overshadowed by two things. One is the fact that, at the same time as it is being introduced, the most important change in personal taxation that most ordinary people have experienced in their lives is taking place. It is the introduction of the poll tax. The Bill is also overshadowed by events that have taken place since the Budget.
It seems extraordinary that we should be about to embark on a long series of Committee discussions and debates on the Floor of the House on a taxation Bill which is miles removed from the main tax preoccupation of most people. It would be reasonable to make an offer to the Government. There is much discussion about last-minute changes that might be made to the poll tax this year. It would be reasonable for the Opposition to say that we should facilitate the introduction of any new clauses that would bring immediate relief from the impact of the poll tax this year. We see no reason why the Finance Bill should not be used to carry out those measures. I should prefer to see the Finance Bill used to abolish the poll tax entirely and to set in its place a far better tax. [HON. MEMBERS: "Hear, hear."] I must say to those who cheer from the

Labour Benches that I am grateful for their support, but I hope that it will extend also to support for a better alternative—local income tax—than they have so far been able to devise.
Many people at present have in mind the need for some immediate relief this year from the enormous impact of the poll tax on those on low incomes, and the Finance Bill would be an appropriate vehicle for that. I extend to the Government the offer that we shall assist them—I have no doubt that hon. Members of other parties will do the same—if they will have the common sense to use the Finance bill to implement some relief for this current year. Who knows what it will be; even Ministers do not seem to know.
I was present when one Minister had a piece of paper stuck in front of him revealing that the announcement of the Prime Minister's parliamentary private secretary had been widely publicised and it all seemed to be news to him. It is obvious that great turmoil is going on. We can only hope, for the sake of our constituents, that some useful result comes of it in terms of help with the terrible impact of that tax on so many people.
I referred to economic developments since the Budget, the most obvious of which is the appalling trade figures which have called the Budget judgment into question. Some of us called the judgment into question at the time. The Chairman of the Select Committee on the Treasury and Civil Service, the right hon. Member for Worthing (Mr. Higgins), did not do so. He is on record as having supported every Budget judgment of every Conservative Chancellor of the Exchequer since he came to the House, and certainly since be became Chairman of the Select Committee. Suffice it to say that he has not been right on every occasion and that he has come to recognise that fact.
The trade deficit reveals that we must achieve an average of £1 billion a month as against £2·2 billion to satisfy the Chancellor's latest forecast. There was genuine hope in many quarters that the most recent set of trade figures would be a great deal better than it was. The trade figures were a real disappointment to many people and they have again called hugely into question the Chancellor's forecast. "Erratic" and other strange descriptions will not explain them away and will certainly not explain the size of the difference from expectations. Despite hopes that the trade figures were improving, the comparison of the latest three months with the previous three months suggests that, once again, the trend is adverse. Exports are up, but imports are going up more and that is the most worrying feature of the figures.
The analysis that the trade deficit was simply the result of excess demand seems flawed if demand is reducing to the extent that the Government claim. One wonders how many appalling sets of trade figures the pound can bear without the Chancellor being put under pressure to increase interest rates to protect sterling at the same time as he should reasonably be preoccupied with the problem of inflation.
It is significant that the Government no longer seem keen to draw our attention to underlying inflation. The Chief Secretary and other Ministers always used to talk about it and whenever Opposition Members referred to the retail prices index, they corrected us immediately and said that it was the underlying figure that counted. The underlying figure has gone up to a worrying 6·3 per cent., and that high level of underlying inflation is likely to get worse. It is likely to be pushed further by the wage-price spiral on which we now seem to have embarked.


Inflationary expectations, whether of trade unionists or of those in the markets, suggest that we may have a far higher underlying inflation rate.
All that is worsened by what the Governor of the Bank of England called administrative price increases—those price increases in basic services over which the Government have control and some of which arise from political decisions to privatise industries. However much the Government soften us up for a dreadful set of RPI figures in just over a week's time, the Government's anti-inflation strategy is in tatters. It is extraordinary that the Government now seem to be hinting that we shall have a 10 per cent. RPI by the end of next week. There seem to be briefings attributed to the Treasury to that effect. That may mean that the rate may be only 9·9 per cent. and that an attempt is being made to make it sound worse than it will be, but it will clearly be very serious.
It is not surprising that with an anti-inflation policy in such a markedly unsuccessful phase there is increasing interest in the idea that we need some other framework within which to operate. It is not surprising that interest is widening in the independence and anti-inflationary role of a central bank. I still believe that the former Chancellor's paper should be dug out of the wastepaper basket and published so that it could be the subject of genuine public debate.
The inflation dangers also cast into doubt the Government's programme for entering the exchange rate mechanism. It is now reasonable to call it a programme as Government spokesmen throw no doubt on the intention to enter the exchange rate mechanism. They say, "When we join" and they talk about what the terms are. What is to be the inflation measure by which we judge whether inflation is proximate to or approaching that of the other Community countries? The Governor suggested that the only condition that the Government had set which had not been satisfied was inflation. The Select Committee sought to establish with the Chancellor what figure he would use to determine whether our inflation was on course to enable us to join the exchange rate mechanism. The Committee asked whether he would consider the trend, the retail prices index figure or the underlying inflation figure. The Chancellor said:
We made it perfectly clear initially that we needed to see a substantial fall in British inflation and I have refined that by explaining that we are looking for a proximate rate of inflation between ourselves and the Community overall, but I am not going to go into further details, I am afraid. I do not think it would be wise or productive to do so.
That comment suggested to me at the time that the Chancellor hoped that he would have a free choice of about three different inflation measures and that one of them would be appropriate at the time that the political decision was made to enter the exchange rate mechanism. He would not tell us whether that decision had already been made. His comments did not suggest that he now knew what was the most effective measure of inflation and would apply it in making that decision. The present pressures towards higher inflation cast doubt on the timetable that the Government may be operating for entering the exchange rate mechanism.
I believe that we should be in that mechanism as early as possible. Without it, the Chancellor is in considerable danger of being forced into a position where he knows that

he should have higher interest rates, if that is the weapon on which he has to rely, but is in no position to bring that about. Even those in the Conservative party who take a view different from mine on the general management of the economy believe that the Chancellor may have reached the political limit of what he can do with interest rates because of the effect they have and the way in which that effect is seen in the Government's own unpopularity. The Government's unpopularity is apt to increase the pressure on sterling and to increase the demand for further rises in the exchange rate, so the Government are caught whichever way they go.
To make matters worse, high interest rates do not hurt everybody. Some benefit from high interest rates and would have substantially more disposable income as a result. They would, no doubt, buy imported goods with the fruit of those higher interest rates. Again, there are more circular pressures on the Chancellor which mean that a total dependence on interest rates is likely to bring him to the point where he cannot increase them to the extent that he and his advisers would regard as necessary to bring about the necessary correction.
When one thinks about using interest rates as a corrective against high borrowing, it is worth bearing in mind that the value of private housing in 1988, after deducting the money borrowed to buy it, was £740 billion, which is an awful lot of asset value to use as collateral for further borrowing. A number of people are in a position to make use of that collateral for a great deal of further borrowing.
For a long period the Government have ignored the combined effect of their fiscal stance and the structural changes in the housing market, the credit institutions and the mortgage markets, and the competition between the financial institutions. That constitutes a failure to apply their various doctrines and beliefs to actual facts and changes which they knew were taking place and of which the most graphic example was the previous Chancellor's failure to see what the effect would be of postponing the changes he was making in the mortgage rate so that people had long enough to make house purchases, taking advantage of the tax relief.
That worrying set of circumstances is the background to the Bill and has called into question the Budget judgment. I believe that the Chancellor should have taken a tighter stance in the Budget. Had he done so, he would have allowed himself more room for manoeuvre. I reject the Chancellor's view that levels of personal taxation as an aspect of fiscal policy are not an appropriate means to use for the regulation of the economy. The Chancellor will not be able to continue in that view once we are in the exchange rate mechanism, as the Select Committee has pointed out. The interest rate instrument is tied up with the operation of the exchange rate mechanism, so the Chancellor will not be able to use it for regulation purposes. At times, he will have to use fiscal policy.
Why was income tax not reduced by a penny in the pound in the present Budget? It is the Government's declared intention to reduce income tax to 20p in the pound. They have not done so in this Budget because they considered that it would not be prudent. What is that but a decision about the management of the economy in present circumstances? The Government have set aside a declared policy objective to do a bit of fine-tuning by not taking any more off income tax. That option would not have been available to the Government if they had


achieved their objective. If the Government had achieved their chosen level of income tax in the long term, there would no longer be room for manoeuvre. But let there be no doubt that this year the Chancellor exercised his freedom to make a judgment of fiscal policy based on current circumstances. It is absurd for the Chancellor to argue that such measures are not appropriate, and in future years he will have to change his doctrine.
I wish to comment on the taxation aspects of the Bill which will not take too long, because there is much in the Bill that is not in the least controversial. At first glance, there does not seem to be much that is controversial in the Bill although, last year, we found ourselves dealing with some fairly controversial retrospective clauses in the later stages of our deliberations. Some of them were introduced during the passage of the Bill. I do not know why once again the Government are having to resort to introducing important clauses on composite rate taxation at a late stage. That suggests that they decided to make the composite rate change at the last minute. I shall not be too critical, however, because I welcome the change; indeed, I wish that it had taken place a year ago.
As it is, building societies are devising complicated but useful schemes to enable people—particularly married women—who will be non-taxpayers this year to gain the benefit of a year under the present system and have the interest paid in the first year of the new system because of the one-year delay. If that were not done, all the money would go into offshore accounts in a year in which there will be a larger number of non-taxpayers but no change in the system.
I cannot agree with the argument of the right hon. Member for Llanelli (Mr. Davies), who thinks that the change is somehow unfair to people who previously had their rates of tax reduced by the contributions of people who should not have been paying tax at all.

Mr. Denzil Davies: I did not say that it was unfair; I merely pointed out that more people would pay more tax and that a minority would benefit but the majority would not.

Mr. Beith: But previously a minority were being penalised. That was unfair; it should have been changed and I am glad that it is now being changed.
I welcome the provisions on football pools duty and on tax incentives for savings—at least as far as they go. They are very much in line with the arguments that the Liberal Democrats have advanced. But I must reiterate that I find it absurd that the tax that is affecting most people does not find a place in our debate.
One of the relatively widely welcomed features of the proposals have been the child care provisions. They have been welcomed by the Labour party because they were precisely what the Labour party asked for—tax relief on workplace nurseries. Nevertheless, I think that the provisions will prove a great disappointment to many working women who do not have access to workplace nurseries but who are paying out of their taxed income for access to nurseries or child care.
How flexible does the Chief Secretary intend the Bill to be? We can discuss it in detail in Committee, but let me ask him this. If two or three employers on adjacent sites on an industrial estate combine to run a workplace nursery, will that provision be excluded or included? If two or three branches of a bank in the same town provide a workplace

nursery, which has to be at one of the branches, will all the employees in all three branches benefit, or only those who work on the premises at which the nursery is located? The provision seems very limited.
The Liberal Democrats believe that there should be a wider form of tax relief on child care that extends to all those who are now having to pay for the facility out of their taxed income. It will seem doubly unfair to many women that a limited number who have access to workplace nurseries should receive tax relief when nothing will be done for them. The change is desirable, as far as it goes, but it will appear particularly divisive and disappointing to the many more women who pay for child care, whose skills are particularly needed at present and who will not be helped by the Bill. Last year when we pressed the case, the Labour party disagreed with us. Labour Members argued that we were going too far and that the relief should be confined as the Government proposed. I think that the issue will continue to be discussed for some time to come.
It is disappointing that we still have no useful new environmental taxation measures in the Budget, apart from the extension of relief on lead-free petrol and some change in company car arrangements. The opportunity could yet be taken if the Secretary of State for the Environment came up with the new tax proposals. Perhaps he is too busy with the poll tax to bother about this subject. The right hon. Gentleman was supposed to have been introducing proposals and I hope that, if he does, they will include tax proposals.
There is still much concern among charities about their future zero-rating. I hope that the Government will make clear their position on that. The fact that there are measures in the Bill to help charities does not allow us to escape that problem. Charities are very concerned about what will happen from 1992, and anxious to protect their status. If their status were changed, it would severely damage a great deal of charitable work in Britain.
If hon. Members go back to their constituencies, especially before next Thursday, waving copies of the Bill and saying to their constituents, "This wonderful Government have removed stamp duty on securities", their constituents will ask them, "What have you done about the poll tax—the real tax measure that is hitting so many of us so hard?"

Mr. Michael Grylls: The hon. Member for Derby, South (Mrs. Beckett), who opened the debate for the Opposition and who spoke for an inordinately long time, tried to make a very gloomy assessment of the British economy, in addition to referring to particular problems that are well known to all of us. I suppose that that is her job. The important thing is the overall position of the economy, not the specific problems that have been referred to, which I shall not rehearse now. New firms and new jobs are being created, the budget is in surplus, we are paying back debts, the economy is not going into decline but is still growing, albeit more slowly than before, and business activity generally is pretty good. To me, those are not the signs of a moribund economy—they are signs of an economy that has been freed by deregulation in successive Budgets introduced by Tory Chancellors.
The hon. Member for Berwick-upon-Tweed (Mr. Beith) chided us by saying that we could not go to our constituencies in advance of polling day on Thursday and say what a wonderful Budget this year's Budget was. I cannot imagine anything worse than introducing a Budget designed to sell to people on polling day. The great thing about the Budgets of the past 10 years is that in them successive Chancellors have tried steadily to improve the lot of the economy. They have been long-term Budgets, reforming taxation and changing the basis of the British economy, and the country has benefited enormously from the changes.
The hon. Member for Derby, South referred in particular to the change in the small firms rate of corporation tax, to the 25 per cent. band and to the increase in the level for marginal relief from £150,000 to £200,000. I was glad to hear her say that she welcomed that. I also welcome it because medium-sized companies can grow only by using internally generated profits. If those are overtaxed, the companies will not grow and expand.
Tax reform is important and it should continue. Although we did not see substantial changes in income tax in this Budget, we hope that those changes will continue in future Budgets. I believe that it is generally accepted that we are still taking too much from people by way of personal taxation. Although we have reformed taxes and cut tax rates, and we should be proud of doing that and should signal to the outside world that our tax rates are among the lowest in the world, the generality of tax is still too high. I am sure that my right hon. Friend the Chief Secretary to the Treasury would agree about that.

Mr. Graham Allen: Will the hon. Gentleman give way?

Mr. Grylls: No. If the hon. Gentleman will forgive me, I will be brief and allow another hon. Member to speak.
Generally it is agreed that we want to return to reducing personal taxation, certainly at the lower end. Tax cuts must be a continuing part of our long-term policy and I hope that that will continue in succeeding Budgets.
I wish to refer to a particular omission from the Budget. I do not decry the positive things that have been done, some of which I have referred to while others are already well known, but I hope that the omission that I intend to highlight will be corrected in a future Budget from this Government. One of the Government's great successes has been in creating what has been accurately called the enterprise society, in which people have been encouraged by tax changes and other incentives to invest their money in small and medium-sized firms and to take a risk.
Many of these small and medium-sized firms are still hit very hard by the level of inheritance tax. It is true that there have been big changes in that tax—the top rate used to be 80 per cent., but it is now down to an effective rate of 20 per cent. once business relief is taken into account—but we should not be satisfied while inheritance tax is still applied to family businesses. That cannot be right.
I know that the Treasury asks, "What are you fussing about?" because the inheritance tax is avoidable. If one gives away the company or hands over one's share to the next generation or the managers within seven years, no inheritance tax has to be paid. However, that argument

misses the point. We cannot decide when we are going to die; we have very little control over that. Inheritance tax distorts business decisions. Too much business planning is spent trying to decide when shares should be handed over to the next generation, whether it be the family or managers. If someone is wise under the present tax system, he arranges that early, but the person to whom control is being handed over may not be ready to accept it. The assets may therefore be damaged. The business might be damaged by someone who is not ready to take on the reins.
I am not talking about inheritance tax on personal wealth—that is a completely different issue—but we should be seriously considering 100 per cent. relief from inheritance tax for businesses so that they can be passed on from one generation to another without being damaged or facing a big bill.
If a company has assets of £1 million—that need not be a big company these days—and pays the normal rate of inheritance tax, it would have to find £200,000 in cash to hand over to the Chancellor. The Treasury sometimes seems to believe that businesses have that kind of money in a drawer somewhere, waiting to be paid out when the proprietor retires or dies, but that is not the case. The company to which I have referred would be badly damaged and would probably have to be sold and taken over by a bigger firm. I am sure that neither the Opposition nor the Government would want that to happen.
We want businesses to grow from generation to generation. Very few businesses succeed in reaching their maximum size in one generation. That is true of business after business. We should ensure that businesses remain independent units of competition and can therefore be handed over to the next generation.
In discussions in relation to the next two Budgets, I beg my right hon. Friend the Chief Secretary to the Treasury to consider how marvelous it would be for Ministers at the end of 12 or 13 years of this Government to abolish inheritance tax for businesses because we want them to thrive and pass on to the next generation as that is the best way to ensure that they grow.

Mr. Giles Radice: I am sure that the hon. Member for Surrey, North-West (Mr. Grylls) will forgive me if I do not follow his remarks.
I believe that it is a good custom that we consider the report of the Treasury and Civil Service Committee when we debate the Second Reading of the Finance Bill. I hope that the Chief Secretary to the Treasury will not mind my saying that it is a particularly good custom this year because of the rather dry and technical nature of this Finance Bill. Probably the only group of people to enjoy this Bill will be the accountants, who I am sure are already sharpening their pens and giving advice to their customers about the Bill. Of course I accept that there are hon. Members on both sides of the House who are longing to spend our summer nights considering the Bill's 104 clauses. However, we have done the House a service by producing our Treasury and Civil Service Committee report in time for this Second Reading debate and I will concentrate my remarks on that report.
The 1977–78 Procedure Committee which set up departmental Select Committees hoped that they would oversee the work of Government Departments and would come to be a check on the Executive. It is probably fair to


say that, despite all the limitations, the Treasury and Civil Service Committee is beginning to do that. I believe that we have been helped by television, too, which informs the public and helps to sharpen the questions, which places Ministers under greater pressure than previously.
The Select Committee's investigation into the economic background of this year's Budget provides a good indication of the progress that has been made. Our sittings, as usual skilfully chaired by the right hon. Member for Worthing (Mr. Higgins), revealed the significant difference of emphasis between the Governor of the Bank of England and the Chancellor of the Exchequer on two key issues—the level of inflation and the exchange rate mechanism.
The Governor—whose evidence as the guardian of the currency we must, of course, respect—predicted that inflation would rise higher than 9 per cent., mostly because of the impact of what he called administered or politically decided prices, especially the poll tax. When we put that to the Chancellor, he refused to answer. To most of us, his silence was as revealing as if he had spoken. It is clear that the retail prices index is likely to go well over 9 per cent. As the hon. Member for Berwick-upon-Tweed (Mr. Beith) said earlier, it could reach 10 per cent. next week.
With regard to the exchange rate mechanism, the Governor of the Bank of England was brutally frank about the Government's conditions for entry which, he said, apart from the level of inflation, were "mere details". In contrast, the Chancellor played a very dead bat. Clearly he was still worried about his relationship with the Prime Minister.
I use those two examples to show that the Select Committee process of question and answer, if properly employed, as I believe it was in our hearings, can throw considerable light on the attitudes and motives of Ministers, and in that sense the Executive becomes more accountable than it otherwise would be.
Given the varied views of the members of the Committee, our reports are usually better known for their analyses than for their prescriptions. I do not believe that they are any the worse for that. Thanks partly to our advisers, our track record is rather better than that of the Treasury. In April 1988, when the then Chancellor was still boasting about an economic miracle, we were warning of the dangers of overheating. We also began to be concerned about the level of inflation and the balance of payments. It was not a matter of hindsight—we got it right at the time.

Mr. Higgins: And house prices, too.

Mr. Radice: And house prices, too, as the right hon. Member for Worthing reminds me.
It is worth seeing what we have to say in our 1990 report, which is closely based on the evidence that was presented to us. We repeat our warnings about inflation and, like the Governor of the Bank of England, we place special emphasis on the possible response of pay bargainers to the impact of the poll tax and other administered crises. We are concerned also about the effect of further currency depreciation on the Government's counter-inflationary strategy. Bearing in mind that there has already been a depreciation of 10 per cent. in the past year, which has clearly had an impact on inflation, one can see what we mean. We are also much less sanguine than the Government about prospects for a significant reduction in

the balance of payments. The latest trade figures show just how far we have to go even to bring the annual deficit down to £15 billion, the forecast level for this year.
For once, the Committee's most interesting observation relates not to economic analyses but to economic policy. Significantly, we note the implication of the stress that the Chancellor laid in his Budget on the medium-term nature of the Government's fiscal policy. Several hon. Members have remarked on that point. By definition, and of necessity, it means that the Chancellor's counter-inflationary strategy is a one-club policy. The consequences are serious. Most hon. Members know from their constituency experience just how damaging the one-club policy has already been. It is literally clobbering small business and investment generally. As the Committee points out, it is also taking a long time to dampen demand. I agree with the right hon. Member for Worthing who chairs our Committee that it is important to have the right statistics, but even so it is clear that it has taken an enormously long time to work.
The Committee points out also that, once in the exchange rate mechanism, the Chancellor will be forced to abandon his one-club policy. Interest rates may need to be used more to support the exchange rate than as part of a counter-inflationary strategy. That means that he will need to use fiscal policy as a short-term weapon. If that is to happen inside the exchange rate mechanism, he might as well get used to it now.
The Chancellor would do well to look across the channel to see how the French economy is now being managed. Another recently published report, the OECD report on the French economy, congratulates the French authorities on their economic management and predicts a period of non-inflationary growth. After two years of sustained growth and low inflation, the OECD report expects the French economy to out-perform other OECD countries on the inflation and growth fronts. That is quite significant, given the problems that the French economy had during the 1980s.
The secret of French success with inflation is that, in contrast to the British Government, the French authorities have been prepared to use all available instruments—monetary, fiscal and exchange rate policy, and even wages policy. As the OECD report points out, French membership of the exchange rate mechanism played a key role in bringing French inflation down to the German level. There is a lesson for us. A country with a similar economy in some ways—it is certainly a similar size—has managed substantially to reduce inflation and to make its economy far more competitive. It has done that without the benefit of North sea oil, which we have enjoyed for the past 10 years or so.
In conclusion, the message of the Select Committee's report is that, in contrast to the French economy, our economy remains dangerously out of balance with a high level of inflation and a big balance of payments deficit. What is more, the report casts doubt on whether the Government are pursuing the appropriate policy instrument to bring the economy back into balance again. Those are disturbing findings that the Government will ignore at their peril.

Mr. David Howell: We are told that there is nothing to be said in 10 minutes that cannot be better said in five. Therefore, I shall attempt to adopt that principle at this late hour—a principle that the hon. Member for Derby, South (Mrs. Beckett) would have been wise to adhere to after an inordinately long speech that said nothing much.
I admire the Budget strategy and the Finance Bill. It is a thoroughly workmanlike operation that meets many of our medium-term supply side needs. As the Treasury Select Committee says in yet another excellent report, it is probably broadly neutral in so far as the Budget's impact on the economy can be measured. Of course it has not really made much difference to our immediate economic worries, of which the most overwhelming by far is the level of inflation, partly as measured by the retail prices index and partly by the underlying inflation rate, which may not be so high but which all would agree is far from satisfactory.
A decade ago we used to say that inflation was the fundamental enemy. It was not only unjust but poisoned everything. Those words were true then and they are true today. I still think that hon. Members do not fully understand just what appalling poison the inflation rate and the RPI rate are injecting into the rest of the economy and creating all sorts of secondary infections throughout the system. We know that every point increase in the RPI immediately adds just under £1 billion to public expenditure, through indexing of state pensions and social security benefits. Straight away, the Budget is hit sideways by an increase in the RPI. Although my right hon. Friend the Chief Secretary tried bravely to head off the proposition—he was talking about another aspect, keeping aside the proposition that the community charge has any immediate relevance to budgetary constructions—the truth as enumerated in the Select Committee report is that it has a devastatingly direct impact on the Budget and, of course, immediately adds to public expenditure. That is quite aside from the fact that we then move on from an RPI figure to pay settlements related to the RPI figure, which gives the whole matter a further spiral upwards, and quite apart also from the fact that inflation has helped to screw up the introduction of the community charge by involving the Treasury in making some absurdly hopeful estimates of inflation rates that had no chance of being met. Local authorities, which are not businesses and do not act like businesses, merely said, "We shall do what is open to us, which is to pile it on to the community charge." Inflation is our problem, as it was a decade ago, and we must get on top of it much more decisively than we are doing now. Of course we have hopes for next year and we must act more urgently.
There are two broad strategies to deal with inflation—there always have been and they remain today. One is to make operative and effective our own domestic monetary discipline in ways that ensure that, whatever happens to different levels of prices—even to the community charge—it is not validated by increases in the money in circulation. The second, in an open economy such as ours, set as we are alongside the huge continental exchange rate bloc of the exchange rate mechanism, is to have an exchange rate policy rather than not to have an exchange rate policy.
That is a controversial view for my hon. Friends and others who think that, if only we can get the monetary discipline at home right, the exchange rate will look after itself. I fear that in the real world, in the real currency markets, that is too simplified a view. They are right in half their proposition—that we must get our monetary discipline more effective—but they are wrong in their proposition that we can then leave the exchange rate side to look after itself. Both are necessary and interlocking elements. Without them both being pursued with more vigour. we shall not get matters right.
On the monetary discipline side, the position is not good. Whether one is a monetarist or a revised monetarist or one merely appreciates in a common sense way the importance of money in the inflationary process, it is worrying to note that the monetary aggregates are going astray. M3 rose by 2·4 per cent. in the period to March; M4 by 17·3 per cent.; and even M0, which is the Government's published target—it is the only one and is only an indicator, not a quantity of control of monetary demand or supply—is moving outside the frame.
It is worrying that we appear to lack the mechanisms and systems by which to control the monetary conditions inside the country. We shall never make a good member of any exchange rate mechanism until we get our own qualifications right as regards monetary discipline. That is why the Chancellor was right when, at the beginning of this year, he said, as he repeated in his Budget speech, that he was concerned about mechanisms of monetary control in this country and was seeking to reform them in a number of ways.
We must face the fact that our present structure does not operate on the supply of money. It operates mostly on the demand for money. Setting the short-term interest rate sets the price, and the Bank of England then says that it will supply virtually unlimited funds, one way or another, to the banks at that level. It is then left to the banks to decide what they do with all that money. The result is that if it is available and they can lend it, they lend it; and if it is lent, it is spent. That position continues even with the very high short-term interest rates that we have today. We shall not achieve effective control over monetary conditions in this country until we move more to controlling the supply of money as opposed to the demand for money.
It is in that area that we must apply our minds if we are to achieve credibility internationally that we have monetary discipline at home. We must give thickness and quality to Britain's monetary policies to ensure that our currency performs decently in international markets, thereby enabling us to command respect and make a contribution in international monetary circles.
The time has come to move towards the proposition being advanced—vigorously by the Governor and deputy Governor of the Bank of England and others—that we need a central monetary authority. The Bank of England is a politically subordinate organisation—it is effective in that role—but it must have a clear statutory obligation to achieve monetary targets and maintain control in the price and value of money. To do that, we should consider more than we have going against the monetary base of the banks, using the weapon of monetary reserve asset ratios—which on occasions the Select Committee examines and does not turn down—and developing a number of other techniques, which I do not have time tonight to enumerate, for going against the supply of money.
In the end, it all comes out in the interest rates. It is valid to say that everything we do is reflected in interest rates. But there is a difference between setting an interest rate and then finding that we must slip away from it, or otherwise operating through a variety of ways on the supply of money and seeing interest rates come out differently. It is the difference between letting the banks lend happily in the knowledge that they will never be caught out, and putting the banks in the position of having to start drawing in their lending in case they find that they must borrow short money at a price higher than they can lend it.
The other part of the policy is the exchange rate mechanism. I agree that it is not a quick fix. We must first get our own monetary position under much better control. If we can do that, it makes sense to move into the exchange rate mechanism, and we should declare more openly our preparedness to do that. When we do that, we may have higher interest rates in certain conditions, but with less volatility.
The interest rate has been moved by public policy decisions 84 times since May 1979. Short-term interest rates have moved that number of times in this country. We can do better. We could have a calmer pattern of interest rates if we had a context in which sterling was seen to operate and in which people could lend across the exchanges without such an exchange rate risk. People could invest in this country to take advantages of our relatively high interest rates with fewer exchange rate risks and that would create a downward and calming pressure on interest rates. It would enable us to get through the next difficult year with less strain than using a system of monetary control that is not up to the task that we face.
Those were the only remarks that I wished to make on that narrow issue. What I am endeavouring to put forward is fundamental to our success in beating inflation, which in turn is fundamental not only to the success of the Government but to the viability and prosperity of Britain in the coming five years.

Mr. Denzil Davies: This debate, as with previous Finance Bill debates, has in essence been about the development of the economy, certainly since the Budget, and there are no prizes for guessing the facts about that development. It has been poor since the Budget.
Inflation is rising again, the trade deficit is horrendous, unemployment is beginning to rise again or will rise soon, our interest rates are the highest in Europe, as we have been told, and they could rise further—that matter is not entirely within the control of the Chancellor—and manufacturing investment is beginning to stagnate and stop.
I should remind Conservative Members—there were echoes of this in the speech of the right hon. Member for Guildford (Mr. Howell)—that in 1979 they came to power to defeat inflation, to right the wrongs and curb the excesses, as the radical right say them, of the 1960s and 1970s and to stop, as the Conservatives of the time say it, the economic decline of Britain.
We see, 11 years later, that they have failed to do those things. We have heard today that inflation, measured by the RPI, may be 10 per cent. this or next month, and Government spokesmen—and the few who still have some

sympathy with the Government—try to console themselves by saying that the underlying rate of inflation is about 6 per cent. Even so, 6 per cent. is twice the rate of inflation in France and Germany, our major competitors on the continent.
By the time that the increases in the poll tax, the mortgage rate increases and the raised excise duty have fallen out of the RPI, perhaps the rate of 10 per cent. will come down. But by that time the underlying rate of inflation may have gone up from 6 to 8 per cent., partly as a result of wage increases and partly because of the devaluation of the pound which has taken place but which has not fully worked its way through the system.
I had always thought that there was an inner contradiction in the policies of the radical right. It believes in controlling and regulating the money supply, but it does not believe in controls or in regulations. That has been the fundamental problem. Indeed, that point was touched on by the right hon. Member for Guildford (Mr. Howell). If one does not believe in regulating the market but believes in freeing everything, including money, how on earth can one control the money supply? Of course, one cannot do so, as has been demonstrated to a considerable extent.
In the latter part of the 1970s it was difficult to control the money supply in a country such as Britain which, because the City of London is an international trading centre, was an open financial economy even then. However, it is far more open today than it was in 1979. Yet a Government came into power who at least espoused monetary policy and called for controls on the supply of money, but who deregulated everything and did not leave themselves any instruments with which they could control the money supply.
The contrast with France and Germany is stark. Germany has a fairly flexible governmental regulatory system but a strong independent central bank. On the other hand, France has a weak central bank—that used to be the case and I believe that it is still true because we certainly do not hear much about the Banque de France—but has a strong, central and almost inflexible governmental regulatory system.
Therefore, while one country has an independent central bank and a looser system of government, the other has the opposite, but both are now maintaining a rate of inflation of between 3 and 3·5 per cent. In Britain we have neither. We do not have a governmental regulatory system and, although I am not advocating an independent central bank, we have a central bank that is somewhere between the Banque de France and the Bundesbank. We have neither one system nor the other.
As I have said, I do not believe that we should have a central bank that is totally independent because I do not believe that in a democratic society bankers should be allowed to control the supply of money. That is something for Government. With great political will and great political skill, plus the instruments at their disposal, the French have shown that that can be achieved through democratic institutions in a democratic society.
The other problem is the balance of payments. The March deficit of £2·2 billion was a shock to everybody, especially the Treasury. Last year we had a deficit of £20 billion, some of which, I concede, resulted from excess demand, and eventually some of the deficit will disappear as demand is reduced. Nobody can know for certain about such things because they are extremely difficult to forecast,


but I do not believe that we will get our balance of payments deficit down to much below £15 billion even with high interest rates.
In the past all kinds of excuses have been made about the balance of payments deficit. First, we were told by the right hon. Member for Blaby (Mr. Lawson) that it did not matter and that we should forget about it. Then we were told that, although it did matter, it did not matter as long as we could finance it. Then we were told that if the figures were wrong anyway, why pay any attention to them? Now we have "erratics" and are back to diamonds and to being told about jumbo jets and Boeings. We have been over that ground before, but the deficit now is much greater than it was in 1970 when the Labour Government lost the election.
It does not give me—or, I hope, anybody else—any pleasure to say that I am fearful that we shall not be able to reduce the deficit to below £15 billion because there may very well be a structural problem, which could have arisen in two ways. First, large sections of our manufacturing industry have been wiped out. That means that we are not substituting for imports because we cannot produce the goods that would provide that substitute. I am talking about a vast range of consumer goods—the kind of goods that most people want to buy and are determined to buy despite the high rates of interest.
Secondly, although I concede that to some extent there has been a change in some industries in the past 10 years, even in those parts of British industry which are now more productive, most of the plant and machinery that is used and most of the investment goods have come from abroad. That is a continual process. It is not a case of buying something once and for all because, in today's world, plant and machinery must change, change, change and we must keep up with the changes.
All hon. Members have toured factories in their constituencies. We have all seen foreign machinery, plant and equipment. The replacement parts and even the servicing of that equipment come from abroad and have to be paid for ultimately in our balance of payments.
Therefore, I cannot see how we can reduce our balance of payments to much below £15 billion without stringent measures.
The other night I Watched "Newsnight" in which my right hon. and learned Friend the Member for Monklands, East (Mr. Smith) participated, along with that highly respected—I say that with the greatest of respect—financial columnist, Mr. Samuel Brittan. On that occasion my right hon. and learned Friend the Member for Monklands, East was not up to his usual standard. Perhaps he was speaking with tongue in cheek, but he suggested that one advantage of having an economic monetary union was that one could wipe out the balance of payments deficit. We know that there can be an act of union and no balance of payments deficit, but that does not solve the problem. All that will do is turn Britain into the South Dakota or the Oklahoma of the united states of Europe. The problem is still there as a drain on our resources and infrastructure. The balance of payments is one of the best indicators of an economy's health. We fall down badly on that, as the Government fall down badly on inflation.
The Government can be accused of many things, such as the neglect of public services and the introduction of the awful, ridiculous poll tax, but in the end it is the economic mess that they have created during the past 10 years that we must consider. It will have to be cleared up by the next Government, at great cost and with great problems for the British public.

9 pm

Mr. James Paice: I have listened with interest to the whole debate. I support strongly what my right hon. Friend the Member for Worthing (Mr. Higgins) said, especially when he supported the Chancellor for not heeding the siren voices that called for substantial increases in taxation, and his comments about Government statistics. As we visit businesses in our constituencies and talk to bankers—as we all do—it must be abundantly clear to us all that the Government's actions on interest rates are already having a strong effect. We can see the effects on the retail sector in the difficulty faced by shops in our constituencies. Sales are down; many have had to shed staff and many are closing. The Chancellor's medicine is clearly working. It is a matter of regret to us all that it is taking longer than we hoped, but that could be construed as a measure of how strong the economy was in the first place.
Until recently, I had lingering yearnings for credit controls, but, such thoughts were dashed and destroyed, not by my right hon. Friend the Chancellor, or even his predecessor my right hon. Friend the Member for Blaby (Mr. Lawson), but by the right hon. and learned Member for Monklands, East (Mr. Smith) who on 24 October 1989 was espousing the cause of voluntary restraint by the banks. When he was pressed by my hon. Friend the Member for Croydon, South (Sir W. Clark) about the foreign banks—which since the abolition of exchange controls have developed a major stake in this country—he said:
I do not think that foreign banks would take an irresponsible view if approached by the Government"—[Official Report, 24 October 1989; Vol. 158, c. 694.]
That is naive. Foreign banks would be more likely to heed the advice of their own Governments and shareholders than that of the Government of the country in which they operate. They operate solely for commercial benefit.
Credit controls by voluntary restraint and moral persuasion were first introduced in the early 1950s. For the following two decades, the severity of the "voluntary" persuasion was increased, until finally in 1971 it was abandoned for positive constraints on the banks. I do not believe that they have any part to play in controlling credit today, to say nothing of the fact that they would not tackle the problem of housing credit, which is the root cause of many of the difficulties.
I hope that my right hon. Friend the Chancellor will examine what has happened in the past week with credit cards. Credit card borrowing accounts for a minuscule amount of total credit, but I object—I know that others do, too—to paying charges that are used to keep interest rates down for those who use the card to borrow. The fact that people who regularly pay off their credit card accounts every month are subsidising other people's interest is especially distasteful. I do not know whether it is something in which we should intervene as a Government, but it gives me cause for regret.
Much has been said this evening about the exchange rate mechanism. I lend my voice entirely to those who are trying to persuade my right hon. Friend the Chancellor not to adhere too strongly to the Madrid requirements but to seek entry sooner rather than later. I say that not because I believe that it is some wonderful palliative or panacea; it is clearly not the sole answer to our difficulties, and anyone who believed that it was would be foolish. My right hon. Friend said in his Budget statement that it would provide a new framework for interest rate decisions, but that even then no one should suppose that it would bring a dispensation from the need for a strong domestic monetary policy, and that is absolutely right. But belonging to the exchange rate mechanism would provide the stability in the currency markets for which industry yearns, and it would be an extra weapon—an extra club in the bag—for the Chancellor in his constant battle to control inflation.
Those of my right hon. and hon. Friends who believe that there is some national pride at stake and that we should not on that account join the rest of Europe in the exchange rate mechanism are, I believe, mistaken: for a long time we have been influenced to a very large extent by what happens in other capitals and by other Governments' activities.
In thinking about the Bill I have also considered what is not in it and what could be in it if there were another Government. My right hon. Friend the Chief Secretary has already mentioned the minimum wage promised by Opposition Members at a cost of 500,000 jobs. What is not in the Bill is anything that could be construed as assisting inflation or accepting inflation as inevitable, but it is clear from an examination of the policy of Opposition Members that they accept a degree of inflation as an inevitable part of progress.
Perhaps most significant of all, the Bill does not introduce any extra income tax on investment income, such as a surcharge on income over £3,000 from some form of savings. Three thousand pounds is the sort of income that would come in from a relatively small amount of savings, perhaps a half-share of an inherited property—the sort of savings and income that many families would expect to have, particularly pensioners. It is not a Budget which reintroduces the gift tax or destroys the opportunity for many people to rent a home by removing the business expansion scheme exceptions from private landlords.
From listening to debates here on the economy I find that many Opposition Members have still not grasped the fundamental fact that the tax rate reductions that we have followed for the past 11 years have increased the Government's revenue and therefore the Government's ability to spend on important services. If people really care about public expenditure on those vital services, what is crucial is not the individual rates of tax but the total sum of money raised from that tax policy; and it has been clear to us all who have followed the path of the past 11 years that the reductions in the tax rates have served to increase the overall take to the Government and therefore the amount of money available. The alternative would be to borrow or to cut expenditure, the path followed by Labour Governments in the past and one that would be followed in the future.
Hon. Members have mentioned the changes in charity taxation. They are widely welcomed on both sides of the House and are not in dispute. I know that it is outside his direct remit, but I suggest to my right hon. Friend the

Chief Secretary that the changes would be considerably enhanced if he could persuade my right hon. and learned Friend the Home Secretary to bring forward a Bill for charity law reform to make sure that charities are in a strong position to use to the very best the enhanced resources that they will receive from this Bill. Concern has been expressed in the press only in the past few days about one large charity—

Mrs. Alice Mahon: Will the hon. Gentleman give way?

Mr. Paice: I will not; other hon. Members want to speak.
I believe that the Government would be wise to introduce charity reform as soon as possible.
TESSA has been widely welcomed on both sides of the House. Its strength is that it is a simple scheme that will be readily understood by ordinary people. The personal equity plan scheme has worked very well, but it has been too complicated, I fear, for many people. I should have liked a more front-end loaded savings scheme that would have enabled the saver to see his benefits more clearly. TESSA, which is fundamentally simple, will go a long way towards remedying our savings difficulties, and that in turn will, I hope, lead to a shift in the underlying levels of interest that it will be necessary to charge in the long-term future.
The abolition of composite rate tax must be right. As a parent I have found it difficult to examine possible investment schemes for my children's meagre savings, since so many of them carry composite rates of tax. Although the abolition will not take place until next year, it will be a great improvement.
The Bill is largely neutral, but my right hon. Friend the Chancellor has clearly shown that in a broadly neutral Budget it is possible to deal with unfairnesses and difficulties and to hand out a range of remedies to those who would otherwise suffer. This is a good Bill, welcomed in many sectors, and the House should welcome it, too.

Mrs. Alice Mahon: I tried to intervene when the hon. Member for Cambridgeshire, South-East (Mr. Paice) was speaking about charities because I, like other Labour Members, was disgusted to hear Oxfam singled out for political treatment. I think that the line goes back to No. 10. I should have liked to have told the hon. Gentleman that the Adam Smith Institute is also a charity. It is highly political, and it certainly never supports Opposition policies.
The Bill fails to address the real problems facing our nation. Our economic predicament is grim, but listening to speeches by Conservative Members one would think that we were in the middle of an economic miracle.
I want to concentrate on the fact that the Bill singularly fails to do anything for manufacturing industry. Manufacturing industry faces grave difficulties, yet Government policies, such as high interest rates, have brought investment almost to a halt and that has further damaged our manufacturing base.
The other day I talked to a director of a good textile firm in Halifax. Textiles have been in retreat, badly damaged by Government policies of the past 10 years. He told me that he had planning permission for an extension


to a factory, he had full order books, yet he could not make the required investment because of the expense of borrowing money.
The Government have severely neglected manufacturing industry. The latest figures show that manufacturing output has ground to a halt. The forecasts in the Budget assume zero growth, and that is bad enough for manufacturing. But recently we had a debate on the multi-fibre arrangement, in which a junior Minister at the Department of Trade and Industry spoke. He hinted that we did not need a multi-fibre arrangement and that it would save no jobs. Hon. Members who heard that must have been depressed about the future for textiles. Those representing constituencies where thousands are employed in the textile industry were very worried. The Silberston report thought that 30,000 jobs would go; the TUC gave a more realistic assessment of about 100,000 jobs. If that happens, an important industry may be wiped out.
The Government have a dismal record on the support of manufacturing industry. The growth rate in manufacturing output in the United Kingdom between 1979 and 1989 was 12·2 per cent. That places us seventeenth of the 20 OECD countries. It would be difficult to find a Government policy which did not damage industry and workers. High inflation, high mortgages and the poll tax mean that low-paid workers have no choice but to ask for pay rises. For the Government to pretend that that in itself will lead to higher inflation is a cheek.
I have already said that high interest rates are damaging manufacturing. Nothing in the Bill will help industry. Families have not benefited, nor have low-paid workers. If Government Back Benchers were honest, they would have tried to do something for families. We have heard praise for tax relief on workplace nurseries, but we heard nothing about the freeze on child benefit which has damaged families.
The so-called reform of the social security system has led to great hardship. Every day we find out about some new hardship. Only the other day I discovered that women who were in receipt of family credit are now much worse off.
Women who work only during school hours and who, for obvious reasons, have the school holidays off cannot claim family credit. They are excluded because they are not working for 52 weeks a year. That is unfair. We are told that the adjudicator will have to decide on those cases. In whatever the Government have done, they have damaged the low-paid and people on low incomes.
A few months ago, a regulation was pushed through the House which will mean that textile workers and other workers who are laid off regularly will not be entitled to full unemployment benefit. The Government have inflicted low pay upon us. The Budget and the Bill will do nothing about it. We have heard from various hon. Members tonight about low pay. Conservative Members have talked about workers claiming exorbitant pay increases. Let me tell them about low pay. In my constituency C and M Packing pays its workers only £10 per day. That is the kind of economy that the Government say we need.
The one provision in the Bill which I welcome is the tax relief on workplace nurseries. Tax should never have been imposed on the nurseries. It was a scandal to pretend that workplace nurseries were a benefit which should be taxed,

along with company cars. When we look at what the Government have done, we see how little it is and that the Government are not concerned.
This week in the House of Commons Magazine the Secretary of State for Employment talked about the demographic time bomb and the fact that 95 per cent. of workers in the future will be women. He praised the Government for taking off that unfair taxation in the Budget. Child care in this country is an absolute disgrace, and the Government do nothing about it. Workplace nurseries represent only 3 per cent. of child care in this country. If the Government were serious about trying to get women back to work, they would be talking about a comprehensive child care policy giving local government the money needed to fund nurseries and local authority community nurseries, doing something about low pay and making sure that women could get back to work.
One of the most comprehensive surveys conducted on workplace nurseries—a Government survey conducted by the Department of Employment—showed that less than 0·2 per cent., or 198 women, out of 1 million women surveyed had children in employment-provided creches. That shows the Government's lack of commitment towards getting women back into the workplace. Government Ministers will have to do something more than stand at the Dispatch Box and pretend. If the women of this country are to get back into the work force, they need to do something about who looks after their children, and that is a Government problem.

Mr. Nicholas Budgen: I am sure that the hon. Member for Halifax (Mrs. Mahon) will find it difficult to believe that those of us caricatured as hard-faced monetarists are so mostly because we are concerned, like her, about the weakest sections of the community who are hit hardest by inflation.
I had not expected to catch Mr. Speaker's eye in this debate. I have heard most of the speeches and came into the Chamber expecting not so much to contribute as to benefit from hearing the speeches. Having heard the various speeches, particularly that of my right hon. Friend the Member for Guildford (Mr. Howell), I reflected that he, most of all, represented respectable opinion. In all his speeches he goes on about the way in which we all want to defeat inflation, and says it is extraordinary that inflation continues. He speaks of various monetarist statistics as though he, and he alone, had the privilege of seeing them and almost says that ordinary commentators in this country had no means of noticing, for instance, that house prices were going up by 20 per cent. in one year or 30 per cent, in another. It seemed to suggest that all those signs of the stoking up of inflation can only now, retrospectively, be seen with the benefit of hindsight. In fact, all those figures were there for all to see at the time. The conclusion that we all reach is that, initially, inflation is much welcomed in this country.
Every time interest rates are unwisely brought down, it is put forward by the Government of the day as an indication of their wisdom, good management or personal generosity. The time must come—I do not know when—when this country will finally decide that it is serious about wanting to get on top of inflation. At that stage, it


will surely say that the track record of Governments is so bad that the control of the money supply must, sadly, be delegated to another independent organisation.
Like my right hon. Friend the Prime Minister, I am highly sceptical of the proposals put forward with such magnificent effrontery by my right hon. Friend the Member for Blaby (Mr. Lawson). I recollect that on an earlier occasion he said that the relationship between the Treasury and the Bank of England was one of the Treasury deciding the policy and the Bank of England carrying it out. If a Labour Chancellor had said that, the pound would have dropped, all respectable opinion would have taken to the correspondence columns of The Times and there would have been a near constitutional disaster. However, at the time it was regarded as an engaging expression of my right hon. Friend's vigour and supremacy.
My right hon. Friend the Prime Minister was properly sceptical of the proposals to make the Bank of England more independent. She suspected that it was part of a wider scheme to bring Britain within the exchange rate mechanism and closer to a European central bank. As she rightly says, we believe in a supreme Parliament with an entirely independent central bank.
I see your eagle eye upon me, Mr. Speaker, so I will conclude. We have an independent judiciary, which is not supported by any special Bill of Rights. It is supported by convention. That is recognised by all parts of what I might pompously describe as educated opinion. In the same way, if we find, as we shall, that entering the ER M does not bring a painless attack upon inflation, and if we find that it has gone exactly the same way as prices and incomes policies, the control of interest rates through reserve assets, credit controls, or all those other myths of a painless way to control inflation, we shall have to give to the Bank of England greater independence within our constitution because we shall have plainly proved that, sadly, over all the years since the war democratic politicians have demonstrated that they and the British people, if in doubt, like inflation.

Mr. Chris Smith: Perhaps inevitably, much of today's debate has focused on the general condition of our national economy rather than on many of the detailed items of the Finance Bill. That is as it should be because the Bill will ultimately be judged by what it does or does not do to bring relief, improvement or assistance to our ailing economy. It roundly fails that test.
I wish to remind the House about some of the overall economic indicators. Had my hon. Friends the Members for Nottingham, North (Mr. Allen) and for Leeds, West (Mr. Battle) been lucky enough to catch your eye, Mr. Speaker, I am sure that they, too, would have wanted to draw attention to those indicators.
Many hon. Members have referred to the balance of payments deficit. The March figure is the second worst ever. The figure for the first quarter of this year of £5·6 billion is the highest ever first quarter figure in our history. Hon. Members have drawn attention to the rate of inflation, which now stands at 8·1 per cent. and is set to rise dramatically in a week and a half.
It is worth reminding ourselves that when the Government took office they inherited an inflation rate just above the European average. It is now double the

European average. Right hon. and hon. Members have drawn attention to the record on output. The latest figures show that manufacturing output is lower now than it was in January 1989. They have also drawn attention to the investment figures. In the last quarter of 1989 investment in manufacturing was 5 per cent. down on the previous quarter, so we have stagnant output, falling investment, a record balance of payments deficit and rising inflation.
It is scarcely surprising that the Chief Secretary concentrated on what had happened in the past rather than on what is happening now to the British economy. However, he made one slip. He tried to convince us—as he has tried to do in the past and we have tried to put him right—that the present Conservative Government believe in low taxes. He may have forgotten what the Government themselves have said in the Red Book which was published at the same time as the Budget. Table 2·5 of the Red Book shows clearly that the overall taxation burden in the economy in 1978–79 was 34 per cent. of GDP. In 1989–90—the financial year just gone—after 10 years of Conservative stewardship of the economy, the overall taxation burden was 36¾ per cent. of GDP. What is worse, in the current financial year, 1990–91, the overall taxation burden goes up by a full percentage point from 36¾ per cent. of GDP to 37¾ per cent. The bulk of that increase is largely due to the unfair and undemocratic imposition of the poll tax on the people of Britain.
The Government are not the party of economic success, nor are they the party of low taxation. What about the Government's chosen policy to bring an errant economy to heel—high interest rates? We have the highest interest rates among the major economies and the highest mortgage rate ever in our history. Those interest rates are supposed to be bearing down on the demand side of the economy, but the figures to which my right hon. Friend the Member for Ashton-under-Lyne (Mr. Sheldon) referred show that they are not working.
Since the previous Chancellor of the Exchequer began to tighten monetary policy to bear down on the demand side, a further £150 billion worth of credit has been pumped into the domestic economy. We have had 21 months of pain, increasing repossessions, household budgets in savage difficulty and mortgage payments increasing by £200 a month or more. And all for what? For £150 billion of extra credit going into the domestic economy.
Interest rates not only have an impact—however loose and ineffective that impact may be—on the demand side of the economy; they also harm the supply side of the economy. We need look no further than the account given by Midland bank on 24 April this year when its chairman warned that high interest rates were hitting businesses as well as individuals and leading to the worsening of the bank's bad debt situation. That warning was echoed again two days later by the deputy chairman of Barclays bank.
The evidence is clear that the operation of high interest rates is hitting business even more harshly than it is hitting the mortgage payers who are paying so much more each month for the homes in which they live.

Mr. Quentin Davies: Will the hon. Gentleman give way?

Mr. Smith: No. I am afraid that time is extremely limited.
Against that background, the Finance Bill fails completely to measure up to the task that the economy


demands. Some items in the Bill are sensible and we welcome them. We have pressed some of them on the Government for some time. Last year we pressed for assistance for friendly societies. The Bill contains a little assistance for them. Last year the Government said that there was no way in which fiscal measures should be used. Now they are using them. We asked for changes in the provisions on Third world debt. The Bill introduces some changes that will help to stop the gravy train for banks to some extent, but those measures will do nothing specific to assist the ailing economies of the Third world.
Last year we asked for the abolition of the tax on workplace nurseries. We have argued that case throughout the past four years. It was dismissed out of hand last year by the Chief Secretary. Now he asks us to accept a Finance Bill that includes it. We welcome that. We are glad that the Government have changed heart on some matters.
We wish to scrutinise other items more closely, such as the changes in oil taxation. We shall want to be convinced that the relief on abandonment costs is balanced by the cap on petroleum tax payments. We are not sure that it is.
We shall examine the treatment of unit trusts, which seems to leave investment trust companies out in the cold. We shall scrutinise the precise operation of relief against VAT for bad debts. We shall examine the closing of loopholes for dual resident companies, a long overdue measure. We shall want to know that those loopholes have been fully closed.
We shall examine the abolition of the business expansion scheme locality rule which makes yet more attractive the private rented property sector of BES, which is already gobbling up 80 per cent. or more of BES relief.
Most important of all is not what the Finance Bill does but what it fails to do. It contains no green agenda for environmental use of the taxation system. Before the Budget we urged the Government to consider some sensible measures such as reducing VAT for energy-efficient appliances, insulation material, recycled material and catalytic converters and increasing VAT on chlorofluorocarbons and other polluting substances. We urged them to use the allowance system against corporations in an environmentally friendly way, to grade the vehicle excise duty scale of payments to encourage people to have smaller cars, and to reduce car tax where catalytic converters are fitted. None of those ideas has been taken up by the Government.
The Government have included no green agenda in the Bill. Nor is there any real help for investment in the manufacturing sector of our economy. There is no help on first-year capital allowances. There is no switch of the emphasis of the business expansion scheme from rented property to manufacturing.
The Bill contains only relatively minor measures on training. The negligible estimated cost of training and enterprise council provision in the Bill reveals that the Government do not intend very much training to take place as a result of the change that the Bill brings about.
The Bill contains no relief for ordinary people facing financial problems with their mortgages, electricity payments, water rates, transport fares, rents or the poll tax. Indeed, the Government have given clear signals that high interest rates are likely to be with us for a long time until there is an unseemly dash to the ballot box with

electoral bribes to the people. By that time the British people will have rumbled the Government for what such bribes undoubtedly will be.
Above all, there is no statement in the Bill or in any of the speeches about it that gives us any hope that the Government are more serious than they have been recently about British membership of the exchange rate mechanism. The evidence of the Select Committee on the Treasury and Civil Service is extremely instructive here. When the Select Committee asked the Governor of the Bank of England whether all the conditions, other than the condition on inflation, out of the Madrid conditions had been met, the Governor said clearly, "Yes." When the Chancellor of the Exchequer was asked the same question, he said, "No." We are entitled to ask the Financial Secretary tonight which of them was giving the Government's position. Have the conditions other than the inflation condition been met or not? On the exchange rate mechanism, as on so much else of Government policy, there is doubt and confusion leading ultimately to disaster.
The Bill is a tinkering Bill which merely scratches the surface of the major problems facing the British economy. It fails miserably to measure up to the task. When the Chancellor commented on the appalling trade figures last week, he made much of what he called "erratic" items in the accounts. The Financial Times on Saturday had the right riposte to the Chancellor and the Government. It said:
Erratic imports are being blamed for the Government's latest trade disaster. Other factors leading to the economic mess, presumably, include erratic inflation, erratic bank lending and erratic productivity growth. But I guess that the Government will never blame erratic policies.
The truth is that we have a Government with erratic policies who have failed the British economy and the British people. The sooner they go, the better.

The Financial Secretary to the Treasury (Mr. Peter Lilley): Before I begin properly, I will answer the question asked by the hon. Member for Islington, South and Finsbury (Mr. Smith). Yes, we are on course to join the exchange rate mechanism of the European monetary system. We welcome Italy's recent moves to abolish exchange controls, but there remain conditions to be met—notably the reduction of inflation in this country. We wait to hear whether the Opposition are still committed to, as they said, "major changes" in the working of the European monetary system before they would be able to join.
This has been an important debate with a number of excellent contributions. I especially regret missing the contributions of my right hon. Friend the Member for Guildford (Mr. Howell) and of my hon. Friends the Members for Surrey, North-West (Mr. Grylls) and for Cambridge, South-East (Mr. Paice). I shall read their contributions closely after the debate. If I am unable to reply to them or to a number of other hon. Members now, I hope that I shall be forgiven due to the brevity of time available. I will provide written replies on any outstanding points.
My right hon. Friend the Member for Worthing (Mr. Higgins) made an especially important contribution. He will appreciate that I cannot pre-empt the reply that my right hon. Friend the Chancellor of the Exchequer will make to the excellent report of the Treasury and Civil


Service Select Committee. My right hon. Friend the Member for Worthing placed particular emphasis on getting the statistics right. I assure him that my right hon. Friend the Chancellor is fully seized of the importance of that and is vigorously pursuing measures about which he has given the Select Committee an idea and on which he will report to it further. We certainly do not intend to spoil the ship for a ha'porth of tar, and it is fair to say that the problems with statistics are not the result of reductions in expenditure, but a consequence of deregulation and more rapid change in the economy with which the statistical process has not kept up.
The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) said that we should return to fiscal fine tuning to control demand and that interest rates were unsuitable for that task. We should be virtually alone among the major countries of the world if we accepted that advice. Most other countries rely on interest rates and on small and regular adjustments, and are successful in so doing. They include socialist countries as well as Conservative countries. Moreover, I do not recall exclusive or major reliance on fiscal policy being as easy or successful as the right hon. Gentleman suggested.
My hon. Friends the Members for Gosport (Mr. Viggers), for Croydon, South (Sir W. Clark) and for Horsham (Sir P. Hordern) expressed concern about our measures on sovereign debt. They were particularly concerned that the new tax treatment might interact adversely with prudential provisioning for bad debt. I can reassure them on that. One effect of our measures will be to separate the tax treatment from the prudential aspect of provisioning, which will remain the responsibility of directors, taking into account the advice that they receive from the Bank of England. The measure will bring certainty both to the Exchequer and to the bank and will phase future increases in relief over a period. It will also increase the relative attraction of selling back debt to debtor nations—a measure that I know is welcomed by hon. Members on both sides of the House.
My hon. Friend the Member for Tatton (Mr. Hamilton) was in vintage form. I heard it suggested that he was being rather brave, at a time when the possibility of promotions is in the air. I thought that his speech was a naked bid for promotion—if only to shut him up. I am certainly not brave enough to comment on all the thorny issues that he raised.
My hon. Friends the Members for Tatton and for Wolverhampton, South-West (Mr. Budgen) joined together in affirming that the British are wedded to inflation, but I believe that they are wrong. It may have been so in the past, but since the experience in the foothills of hyper-inflation in the late 1970s, things have changed. That experience registered a shock on the British psyche similar to the shock which made the German people permanently hostile to inflation. Our shock may have been smaller, but it is fresher in our minds. I believe that there is now a much larger constituency in this country for anti-inflationary policy. I do not expect people to express pleasure while undergoing the painful measures that are essential to get inflation down, but I am certain that they will never vote in a party which is manifestly soft on inflation and whose policies are wholly lacking in credibility.
That brings me directly to the speech made by the hon. Member for Derby, South (Mrs. Beckett). I am grateful to her for her welcome for a number of the measures included

in the Bill. Those apart, however, she did not mention a single item in the Bill, nor did she use the occasion—as one might have expected from the spokesman of a party which hoped to be taken seriously as an alternative party of Government—to spell out Labour's alternative tax proposals. There was not a word about them. Sometimes Treasury Ministers are criticised for going into pre-Budget purdah. The present Opposition are the first Opposition to go into a post-Budget purdah, which is in fact a pre-election purdah. Labour Members intend to remain mum on the subject for as long as they can, but we shall not permit them to do so.
The hon. Member for Derby, South refused to answer the question posed by a number of my hon. Friends: what would the Labour party do to get inflation down? We know what Labour would do to get inflation up. It would cut interest rates prematurely, increase public spending, squander the surplus and return to deficit financing. The hon. Lady admitted that Labour had endorsed the mistake that we have acknowledged that we made in reducing interest rates in October 1987, following the worldwide stock market collapse. What she did not admit was that the Labour party demanded that we do more—lots more—and continued demanding it for some months afterwards. The right hon. and learned Member for Monklands, East (Mr. Smith) said:
Now is the time for cuts in interest rates to stimulate the economy … Now is the time for a programme of well planned public investment to mobilise the unused capacity … There is no economic constraint on such action"—
only the restraint of what the right hon. and learned Gentleman called "self-imposed dogma."
The Labour party is in a difficult position. If Labour Members admit that our problems resulted from cutting interest rates too much and holding them down for too long, they would have to acknowledge that a period of high interest rates is a necessary and practical way of getting inflation down. Instead, Labour tried to blame everything on the 1988 Budget—the first Budget with a £14 billion surplus that I have ever heard described as inflationary. At that time, no other Government in the western world were running a surplus of that magnitude. The income tax cuts that we made then were more than offset by rises in tax revenues elsewhere, so that Budget was more than fully balanced. There were only £4 billion of reductions in income tax then. As my hon. Friend the Member for Tatton explained, there was something like a £50 billion increase in borrowing over the ensuing year. It is hard to believe that any increase in taxation could have been adequate or appropriate to offset that rise in borrowing. Clearly, one should treat such matters at source—and that means dealing with interest rates.
The hon. Member for Derby, South thought that there might be some salvation for her position in a rather obscure Teutonic document from the Bundesbank. She said that if we adopted minimum reserve ratios we would be able to reduce our interest rates but still control the volume of credit. Nowhere in that document is it suggested that minimum reserve ratios enable the Bundesbank to restrict the volume of credit while keeping interest rates below the market clearing level. Minimum reserve ratios are simply a device to help to ensure that the interest rates set by the Bundesbank are transmitted throughout the banking system.
That point is made crystal clear in a research paper, also published by the Bundesbank, which states:


the Bundesbank can work only indirectly towards ensuring that the … money stock develops along the envisaged lines, by the appropriate fixing of interest rates".
Central bank interest rates are only transmitted through the banking system in Germany or in the United Kingdom if the banks rely on the central bank for their extra cash. The central bank therefore fixes an interest rate at which it will lend to the commercial banking system. It must ensure that the commercial banking system is borrowing from it.
In Germany that shortage is ensured by the minimum reserve ratio. The Germans must use the M RR because for constitutional reasons they are not allowed to intervene in the money market in the way that we are by selling Treasury bills. In this country we are free to sell Treasury bills and maintain a shortage on that basis.

Mr. Allen: rose——

Mr. Lilley: If the hon. Member for Derby, South seriously believes that she has found a solution to the problems of reducing interest rates while controlling credit, she is deluding herself.
This year's Budget is important because it is the latest in a series of reforming Budgets in which my right hon. Friend the Chancellor of the Exchequer and his two predecessors have cut tax rates and abolished seven major taxes. In this Budget alone we have abolished two major taxes—we have abolished the composite rate tax on savings held by those with low incomes, and we have also abolished stamp duty. We have yet to hear whether the Opposition would reinstate stamp duty or whether they intend to follow our lead and acknowledge that it is right to abolish it. Even though the time left to me is limited, I will allow the Opposition to make their position clear on that. They have still not made up their minds.
We have reformed the tax structure in our series of reforming Budgets. We have reformed the structure of corporation tax, of national insurance contributions and of income tax at all levels. We have also reformed the taxation of husbands and wives and in this Budget we have reformed the taxation of savers. This Finance Bill contains a variety of measures which have been welcomed by savers in particular and also by women, small businesses, charities and football. I commend it to the House.

Question put, That the Bill be now read a Second time:—

The House divided:Ayes 335, Noes 205.

Division No. 189]
[10 pm


AYES


Adley, Robert
Banks, Robert (Harrogate)


Aitken, Jonathan
Batiste, Spencer


Alexander, Richard
Beaumont-Dark, Anthony


Alison, Rt Hon Michael
Bellingham, Henry


Allason, Rupert
Bendall, Vivian


Amery, Rt Hon Julian
Bennett, Nicholas (Pembroke)


Amess, David
Benyon, W.


Amos, Alan
Bevan, David Gilroy


Arbuthnot, James
Biffen, Rt Hon John


Arnold, Jacques (Gravesham)
Blaker, Rt Hon Sir Peter


Arnold, Tom (Hazel Grove)
Body, Sir Richard


Ashby, David
Bonsor, Sir Nicholas


Aspinwall, Jack
Boscawen, Hon Robert


Atkins, Robert
Boswell, Tim


Baker, Rt Hon K. (Mole Valley)
Bottomley, Peter


Baker, Nicholas (Dorset N)
Bottomley, Mrs Virginia


Baldry, Tony
Bowden, A (Brighton K'pto'n)





Bowden, Gerald (Dulwich)
Griffiths, Peter (Portsmouth N)


Bowis, John
Grist, Ian


Boyson, Rt Hon Dr Sir Rhodes
Ground, Patrick


Braine, Rt Hon Sir Bernard
Grylls, Michael


Brandon-Bravo, Martin
Hague, William


Brazier, Julian
Hamilton, Hon Archie (Epsom)


Bright, Graham
Hamilton, Neil (Tatton)


Brown, Michael (Brigg &amp; Cl't's)
Hampson, Dr Keith


Browne, John (Winchester)
Hanley, Jeremy


Bruce, Ian (Dorset South)
Hannam, John


Buchanan-Smith, Rt Hon Alick
Hargreaves, A. (B'ham H'll Gr')


Buck, Sir Antony
Harg reaves, Ken (Hyndburn)


Budgen, Nicholas
Harris, David


Burns, Simon
Haselhurst, Alan


Burt, Alistair
Hawkins, Christopher


Butler, Chris
Hayes, Jerry


Butterfill, John
Hayhoe, Rt Hon Sir Barney


Carlisle, John, (Luton N)
Hayward, Robert


Carlisle, Kenneth (Lincoln)
Heath, Rt Hon Edward


Carrington, Matthew
Heathcoat-Amory, David


Carttiss, Michael
Heseltine, Rt Hon Michael


Cash, William
Hicks, Mrs Maureen (Wolv' NE)


Channon, Rt Hon Paul
Higgins, Rt Hon Terence L.


Chapman, Sydney
Hill, James


Chope, Christopher
Hind, Kenneth


Churchill, Mr
Hogg, Hon Douglas (Gr'th'm)


Clark, Hon Alan (Plym'th S'n)
Hordern, Sir Peter


Clark, Dr Michael (Rochford)
Howard, Rt Hon Michael


Clark, Sir W. (Croydon S)
Howarth, Alan (Strat'd-on-A)


Clarke, Rt Hon K. (Rushcliffe)
Howarth, G. (Cannock &amp; B'wd)


Colvin, Michael
Howe, Rt Hon Sir Geoffrey


Conway, Derek
Howell, Rt Hon David (G'dford)


Coombs, Anthony (Wyre F'rest)
Howell, Ralph (North Norfolk)


Coombs, Simon (Swindon)
Hughes, Robert G. (Harrow W)


Couchman, James
Hunt, Sir John (Ravensbourne)


Cran, James
Hunter, Andrew


Critchley, Julian
Irvine, Michael


Currie, Mrs Edwina
Irving, Sir Charles


Davies, Q. (Stamf'd &amp; Spald'g)
Jack, Michael


Davis, David (Boothferry)
Jackson, Robert


Day, Stephen
Janman, Tim


Devlin, Tim
Jessel, Toby


Dickens, Geoffrey
Johnson Smith, Sir Geoffrey


Dorrell, Stephen
Jones, Gwilym (Cardiff N)


Douglas-Hamilton, Lord James
Jones, Robert B (Herts W)


Dover, Den
Jopling, Rt Hon Michael


Dunn, Bob
Kellett-Bowman, Dame Elaine


Durant, Tony
Key, Robert


Dykes, Hugh
Kilfedder, James


Eggar, Tim
King, Roger (B'ham N'thfield)


Emery, Sir Peter
King, Rt Hon Tom (Bridgwater)


Evans, David (Welwyn Hatf'd)
Kirkhope, Timothy


Evennett, David
Knapman, Roger


Fairbairn, Sir Nicholas
Knight, Greg (Derby North)


Fallon, Michael
Knight, Dame Jill (Edgbaston)


Fenner, Dame Peggy
Knowles, Michael


Field, Barry (Isle of Wight)
Knox, David


Finsberg, Sir Geoffrey
Lamont, Rt Hon Norman


Fookes, Dame Janet
Lang, Ian


Forman, Nigel
Latham, Michael


Forth, Eric
Lawrence, Ivan


Fowler, Rt Hon Sir Norman
Lawson, Rt Hon Nigel


Fox, Sir Marcus
Lee, John (Pendle)


Freeman, Roger
Leigh, Edward (Gainsbor'gh)


French, Douglas
Lennox-Boyd, Hon Mark


Fry, Peter
Lester, Jim (Broxtowe)


Gale, Roger
Lilley, Peter


Gardiner, George
Lloyd, Sir Ian (Havant)


Garel-Jones, Tristan
Lloyd, Peter (Fareham)


Gill, Christopher
Lord, Michael


Gilmour, Rt Hon Sir Ian
Luce, Rt Hon Richard


Glyn, Dr Sir Alan
Lyell, Rt Hon Sir Nicholas


Goodhart, Sir Philip
McCrindle, Robert


Goodson-Wickes, Dr Charles
Macfarlane, Sir Neil


Gorman, Mrs Teresa
MacKay, Andrew (E Berkshire)


Gorst, John
Maclean, David


Gow, Ian
McLoughlin, Patrick


Greenway, Harry (Ealing N)
McNair-Wilson, Sir Michael


Greenway, John (Ryedale)
McNair-Wilson, Sir Patrick


Gregory, Conal
Madel, David






Major, Rt Hon John
Shelton, Sir William


Malins, Humfrey
Shephard, Mrs G. (Norfolk SW)


Mans, Keith
Shepherd, Colin (Hereford)


Maples, John
Shepherd, Richard (Aldridge)


Marland, Paul
Shersby, Michael


Marlow, Tony
Sims, Roger


Marshall, John (Hendon S)
Skeet, Sir Trevor


Marshall, Michael (Arundel)
Smith, Tim (Beaconsfield)


Martin, David (Portsmouth S)
Speed, Keith


Mates, Michael
Speller, Tony


Maude, Hon Francis
Spicer, Sir Jim (Dorset W)


Mawhinney, Or Brian
Spicer, Michael (S Worcs)


Maxwell-Hyslop, Robin
Squire, Robin


Mayhew, Rt Hon Sir Patrick
Stanbrook, Ivor


Meyer, Sir Anthony
Stanley, Rt Hon Sir John


Miller, Sir Hal
Steen, Anthony


Mills, Iain
Stern, Michael


Miscampbell, Norman
Stevens, Lewis


Mitchell, Andrew (Gedling)
Stewart, Allan (Eastwood)


Mitchell, Sir David
Stewart, Andy (Sherwood)


Moate, Roger
Stewart, Rt Hon Ian (Herts N)


Monro, Sir Hector
Stokes, Sir John


Montgomery, Sir Fergus
Stradling Thomas, Sir John


Moore, Rt Hon John
Sumberg, David


Morris, M (N'hampton S)
Summerson, Hugo


Morrison, Sir Charles
Tapsell, Sir Peter


Morrison, Rt Hon P (Chester)
Taylor, Ian (Esher)


Moss, Malcolm
Taylor, John M (Solihull)


Mudd, David
Taylor, Teddy (S'end E)


Neale, Gerrard
Tebbit, Rt Hon Norman


Needham, Richard
Temple-Morris, Peter


Nelson, Anthony
Thatcher, Rt Hon Margaret


Neubert, Michael
Thompson, D. (Calder Valley)


Newton, Rt Hon Tony
Thompson, Patrick (Norwich N)


Nicholls, Patrick
Thorne, Neil


Nicholson, David (Taunton)
Thornton, Malcolm


Nicholson, Emma (Devon West)
Thurnham, Peter


Norris, Steve
Townend, John (Bridlington)


Onslow, Rt Hon Cranley
Townsend, Cyril D. (B'heath)


Page, Richard
Tracey, Richard


Paice, James
Tredinnick, David


Patnick, Irvine
Trotter, Neville


Patten, Rt Hon Chris (Bath)
Twinn, Dr Ian


Patten, Rt Hon John
Vaughan, Sir Gerard


Pattie, Rt Hon Sir Geoffrey
Viggers, Peter


Pawsey, James
Walden, George


Peacock, Mrs Elizabeth
Walker, Bill (T'side North)


Porter, Barry (Wirral S)
Walker, Rt Hon P. (W'cester)


Porter, David (Waveney)
Waller, Gary


Price, Sir David
Ward, John


Raffan, Keith
Wardle, Charles (Bexhill)


Raison, Rt Hon Timothy
Warren, Kenneth


Rathbone, Tim
Watts, John


Redwood, John
Wells, Bowen


Renton, Rt Hon Tim
Wheeler, Sir John


Rhodes James, Robert
Whitney, Ray


Riddick, Graham
Widdecombe, Ann


Ridley, Rt Hon Nicholas
Wiggin, Jerry


Ridsdale, Sir Julian
Wilkinson, John


Rifkind, Rt Hon Malcolm
Wilshire, David


Roberts, Wyn (Conwy)
Winterton, Mrs Ann


Roe, Mrs Marion
Winterton, Nicholas


Rost, Peter
Wolfson, Mark


Rowe, Andrew
Wood, Timothy


Rumbold, Mrs Angela
Woodcock, Dr. Mike


Ryder, Richard
Yeo, Tim


Sackville, Hon Tom
Young, Sir George (Acton)


Sainsbury, Hon Tim
Younger, Rt Hon George


Sayeed, Jonathan



Scott, Rt Hon Nicholas
Tellers for the Ayes:


Shaw, David (Dover)
Mr. Alastair Goodlad and Mr. David Lightbown.


Shaw, Sir Giles (Pudsey)



Shaw, Sir Michael (Scarb')





NOES


Abbott, Ms Diane
Armstrong, Hilary


Adams, Allen (Paisley N)
Ashley, Rt Hon Jack


Allen, Graham
Ashton, Joe


Anderson, Donald
Barnes, Harry (Derbyshire NE)


Archer, Rt Hon Peter
Barnes, Mrs Rosie (Greenwich)





Battle, John
Hinchliffe, David


Beckett, Margaret
Hogg, N. (C'nauld &amp; Kilsyth)


Beggs, Roy
Home Robertson, John


Beith, A. J.
Hood, Jimmy


Bell, Stuart
Howarth, George (Knowsley N)


Benn, Rt Hon Tony
Howell, Rt Hon D. (S'heath)


Bennett, A. F. (D'nt'n &amp; R'dish)
Howells, Geraint


Bermingham, Gerald
Howells, Dr. Kim (Pontypridd)


Bidwell, Sydney
Hughes, John (Coventry NE)


Blunkett, David
Hughes, Robert (Aberdeen N)


Boateng, Paul
Hughes, Roy (Newport E)


Boyes, Roland
Hughes, Simon (Southwark)


Bradley, Keith
Ingram, Adam


Brown, Nicholas (Newcastle E)
Janner, Greville


Brown, Ron (Edinburgh Leith)
Jones, Ieuan (Ynys Môn)


Buchan, Norman
Jones, Martyn (Clwyd S W)


Buckley, George J.
Kaufman, Rt Hon Gerald


Caborn, Richard
Kirkwood, Archy


Callaghan, Jim
Leadbitter, Ted


Campbell, Ron (Blyth Valley)
Leighton, Ron


Campbell-Savours, D. N.
Lestor, Joan (Eccles)


Canavan, Dennis
Lewis, Terry


Carlile, Alex (Mont'g)
Litherland, Robert


Cartwright, John
Livingstone, Ken


Clark, Dr David (S Shields)
Lloyd, Tony (Stretford)


Clarke, Tom (Monklands W)
Lofthouse, Geoffrey


Clay, Bob
McAllion, John


Clelland, David
McAvoy, Thomas


Clwyd, Mrs Ann
McCartney, Ian


Cohen, Harry
Macdonald, Calum A.


Cook, Frank (Stockton N)
McFall, John


Cook, Robin (Livingston)
McKay, Allen (Barnsley West)


Corbyn, Jeremy
McKelvey, William


Cousins, Jim
McLeish, Henry


Cox, Tom
Maclennan, Robert


Crowther, Stan
McNamara, Kevin


Cryer, Bob
McWilliam, John


Cummings, John
Madden, Max


Cunliffe, Lawrence
Marion, Mrs Alice


Cunningham, Dr John
Marek, Dr John


Dalyell, Tarn
Marshall, David (Shettleston)


Darling, Alistair
Marshall, Jim (Leicester S)


Davies, Rt Hon Denzil (Llanelli)
Martin, Michael J. (Springburn)


Davies, Ron (Caerphilly)
Martlew, Eric


Davis, Terry (B'ham Hodge H'l)
Maxton, John


Dixon, Don
Meacher, Michael


Dobson, Frank
Meale, Alan


Doran, Frank
Michael, Alun


Duffy, A. E. P.
Michie, Bill (Sheffield Heeley)


Dunnachie, Jimmy
Mitchell, Austin (G't Grimsby)


Eadie, Alexander
Moonie, Dr Lewis


Eastham, Ken
Morgan, Rhodri


Evans, John (St Helens N)
Morley, Elliot


Ewing, Harry (Falkirk E)
Morris, Rt Hon A. (W'shawe)


Fatchett, Derek
Morris, Rt Hon J. (Aberavon)


Faulds, Andrew
Mowlam, Marjorie


Field, Frank (Birkenhead)
Mullin, Chris


Fisher, Mark
Murphy, Paul


Flannery, Martin
Nellist, Dave


Flynn, Paul
Oakes, Rt Hon Gordon


Foot, Rt Hon Michael
O'Brien, William


Forsythe, Clifford (Antrim S)
O'Neill, Martin


Foster, Derek
Orme, Rt Hon Stanley


Foulkes, George
Owen, Rt Hon Dr David


Fraser, John
Patchett, Terry


Fyfe, Maria
Pendry, Tom


Galloway, George
Pike, Peter L.


Garrett, John (Norwich South)
Powell, Ray (Ogmore)


George, Bruce
Prescott, John


Godman, Dr Norman A.
Primarolo, Dawn


Gordon, Mildred
Quin, Ms Joyce


Gould, Bryan
Radice, Giles


Graham, Thomas
Redmond, Martin


Grant, Bernie (Tottenham)
Rees, Rt Hon Merlyn


Griffiths, Win (Bridgend)
Reid, Dr John


Grocott, Bruce
Richardson, Jo


Hardy, Peter
Robertson, George


Harman, Ms Harriet
Robinson, Geoffrey


Hattersley, Rt Hon Roy
Rogers, Allan


Heal, Mrs Sylvia
Rooker, Jeff






Rowlands, Ted
Taylor, Rt Hon J. D. (S'ford)


Ruddock, Joan
Thompson, Jack (Wansbeck)


Salmond, Alex
Turner, Dennis


Sedgemore, Brian
Vaz, Keith


Sheldon, Rt Hon Robert
Walley, Joan


Shore, Rt Hon Peter
Wardell, Gareth (Gower)


Short, Clare
Watson, Mike (Glasgow, C)


Sillars, Jim
Welsh, Andrew (Angus E)


Skinner, Dennis
Welsh, Michael (Doncaster N)


Smith, Andrew (Oxford E)
Williams, Rt Hon Alan


Smith, C. (Isl'ton &amp; F'bury)
Williams, Alan W. (Carm'then)


Smith, Rt Hon J. (Monk'ds E)
Winnick, David


Smith, J. P. (Vale of Glam)
Worthington, Tony


Snape, Peter
Wray, Jimmy


Soley, Clive
Young, David (Bolton SE)


Spearing, Nigel



Steinberg, Gerry
Tellers for the Noes:


Stott, Roger
Mr. Frank Haynes and Mrs. Llin Golding.


Straw, Jack



Taylor, Mrs Ann (Dewsbury)

Question accordingly agreed to.

Bill read a Second time.

FINANCE BILL (Committal)

Ordered,
That Clauses 3, 9, 10, 18 to 20, 23, 25 and 68 be committed to a Committee of the whole House;
That the remainder of the Bill be committed to a Standing Committee;
That, when the provisions of the Bill considered, respectively, by the Committee of the whole House and by the Standing Committee have been reported to the House, the Bill be proceeded with as if the Bill had been reported as a whole to the House from the Standing Committee.—[Mr. Durant.]

Committee tomorrow.

Points of Order

Mr. Anthony Beaumont-Dark: On a point of order, Mr. Speaker. Earlier today we raised points of order about the problem of what is now being called the "supergun of Iraq". People at Walter Somers are now being questioned and are being held in custody by the police on evidence that has been laid against them by Customs and Excise. I wonder, Mr. Speaker, whether you have had a request for permission to make a statement on this grave matter. Surely it must be a matter for the House that people who have asked the Department of Trade and Industry for clearance, which has been granted, should now be parted from their families. That seems desperately unfair.

Mr. Speaker: Order. I understand that this matter was raised earlier in the evening. It is not a matter of order in the Chamber, but I am sure that what has been said has been heard by the Patronage Secretary, who will take account of it.

Mr. Richard Caborn: Further to that point of order, Mr. Speaker.

Mr. Speaker: I am not certain that I can help.

Mr. Caborn: As you probably know, Mr. Speaker, this matter is of great concern to many of my constituents because one of the factories in question is Sheffield Forgemasters, which is in my constituency. In the light of the Government's refusal to make a statement this evening, I would like your guidance—probably overnight

—Mr. Speaker, as to what the position will be tomorrow at the Select Committee on Trade and Industry. [Interruption.]

Mr. Speaker: Order. Would hon. Member who are not in the Chamber to listen to the points of order kindly come into the Chamber or leave quietly?

Mr. Caborn: I would like your guidance, Mr. Speaker, on the position of the Select Committee on Trade and Industry tomorrow in the light of the charges that may have been laid. Would it be proper for that Select Committee to consider the evidence that has been lodged with it, which proves the innocence of Sheffield Forgemasters and clearly shows that the Department of Trade and Industry gave permission for the company to sign the contract?

Mr. Speaker: Order. I am not certain that I should be hearing matters that are to be raised in a Select Committee.

Mr. Caborn: I am asking for your consideration overnight, Mr. Speaker, of whether evidence that will be heard tomorrow that shows the innocence of those people will fall foul of the sub judice rule.

Mr. Speaker: I cannot dictate to a Select Committee what it discusses, as Select Committees regulate their own business. It is not my responsibility.

Mr. David Winnick: Further to that point of order, Mr. Speaker. I also represent a west midlands constituency. I hope that you will appreciate my concern and that of the hon. Member for Birmingham, Selly Oak (Mr. Beaumont-Dark). There is much concern in the region about this matter. I have tried persistently to find out through parliamentary questions the exact dates when the hon. Member for Bromsgrove (Sir. H. Miller) made inquiries of the Department regarding the order for Iraq. Had those questions been answered—either by written answer or by a statement by the Secretary of State—perhaps the people who have been interviewed today by the police and the Customs and Excise officials would not have been investigated.
Is there any way in which you, Mr. Speaker, could use your power and influence to ensure that tomorrow the Secretary of State for Trade and Industry comes to the House to answer those questions? When did the hon. Member for Bromsgrove contact his Department? The hon. Member for Bromsgrove said in the House that he made inquiries on behalf of the Walter Somers company. Why have we not had the information?

Mr. Speaker: I do not know about matters of that kind. It is not a matter of order for me in the Chamber, but it will undoubtedly have been heard by the Government Front Bench.

Mr. Tam Dalyell: Further to that point of order, Mr. Speaker. I know that you, Mr. Speaker, cannot dictate to the House, but the Government Chief Whip does us the courtesy of being here. However, could it be expressed that there is a wide feeling that not only Trade and Industry Ministers should be present, but that a Defence Minister should come to the House when people are facing charges? We know that the Defence Export Services Secretariat knew at an early stage about the order. People are now being charged for that which was in the domain of the Government and, in particular, in the


domain of the DESS inside the Ministry of Defence. It is high time that. Defence Ministers, asked direct questions as they were two Wednesdays ago as to when they first knew, came out with the truth, because people are being charged.

Mr. Speaker: That is as it may be. I am sure that it will have been taken into account by the Patronage Secretary, who has listened throughout to these points of order.

Housing (Stoke-on-Trent)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Durant.]

Ms. Joan Walley: It is precisely because of my experience at constituency surgeries over the past few months that I have been prompted to seek the Adjournment of the House to debate what is a most important issue in my constituency. Anyone who had seen the huge number of homeless people who have come to my surgeries, who have families and who have nowhere to live, would be left with no alternative but to bring the matter urgently to the attention of the House. I know that the Minister who will reply to the debate has in recent weeks had the opportunity to visit Stoke-on-Trent, North and I know that he has seen at first hand some of our many problems. I hope that we will have a constructive response from him which will enable the city council of Stoke-on-Trent and the borough council of Newcastle to go a considerable way in dealing with the huge problem of homelessness. Roughly one third of Stoke-on-Trent comes under Newcastle borough council and the remaining two thirds under Stoke-on-Trent city council.
Of all the problems of the area, housing is one of the major ones. I stress that both councils are Labour-controlled and will remain so. Both are equally committed to deal with the acute and growing housing crisis which is easily the worst since the second world war. Both councils are doing the very best job that they can under the impossible constraints imposed by central Government. Neither council is able to invest either in new house building or in the improvement of existing housing on the scale which is now both necessary and urgent.
I stress that it is the scale of the problem that is so important. New and improved homes are urgently needed. Both councils are working in close partnership with the Government on specific schemes, and we welcome them. We have seen some progress. But it is important to state that, although there have been some improvements, far more are needed. My surgeries have shown me that homelessness is now a serious problem that we must tackle. I hope that I can persuade the Government that more resources are needed and that, if they cannot be provided this financial year, it is essential that the Government plan to make them available in the next allocation of housing money to the two councils concerned.
North Staffordshire is no different from most other parts of the country in this respect. Last year Channel 4, in consultation with Shelter, produced an important documentary about homelessness. I felt that it should have had the status of the documentary "Cathy Come Home". Wanting to dispel the false assumption that only London has a problem of homelessness, the makers of the programme selected North Staffordshire as an average area not normally associated with rising homelessness. The documentary confirmed beyond all doubt that, after 10 years of Tory policies, it is not just in London that people are made homeless and are without homes; homelessness is an everyday reality for thousands of people throughout the country. Families as well as single people are without a place to live. The situation is intolerable. I want the


Minister to answer for the misery that his Government's policies are causing to my constituents and others in the west midlands and the north-west.
In the west midlands in 1989 as many as 14,250 households were homeless and came under the responsibility of the local authorities, under the provisions of the Housing Act 1985. Similarly, in the north-west in 1989 as many as 21,210 households were homeless and local authorities had to accept responsibility for them.
Returning to a constituency level, and taking Newcastle first, how does the Minister account for there being as many as 59 families with children in lodgings, 24 eligible transfer applicants and 17 approved cases, all awaiting rehousing in two or three-bedroomed houses—not in the whole area of Newcastle but just in the Kidsgrove area of the borough, including Talke, Talke pits and Whitehill? How does he account for there being only five houses available for re-letting in that area during the past three months; and how does he account for the waiting time for eligible applicants being more than one year?
It is difficult to imagine what it must be like for applicants who have to come to my surgeries time and again and who are told by the council that despite its best efforts there are no houses available for letting in the near future. It is difficult to imagine the fear that their children will be grown up before they have had any chance of providing a secure home for them. It is difficult to imagine what it must be like for families feeling guilty about the extra pressure that they are placing on ageing relatives when they have to share their accommodation and use only the downstairs living room because the remainder of the house is already overcrowded with the rest of the family living there. Surely it is wrong that these people have no home of their own in the area to which they belong and in which they have strong community links, and where they want to stay, with decent accommodation.
Just in case the Minister had thought of intervening to say that this is purely a matter for the local council to sort out, I should like to remind him of some figures. Newcastle council spent more on housing in 1988–89 than on anything else, yet its housing service has been increasingly restrained by Government legislation and reductions in finance. After the past 10 years in which the council's borrowing allocation for housing work has been reduced, its ability to improve its properties or to build new ones has become progressively limited. By 1989–90 the council's basic allocation as a percentage of its actual bid was 14·5 per cent., and the Housing Act is set further to restrict the council's ability to satisfy the area's many housing needs.
This year, the council's bid for a housing allocation was for £8·863 million—a figure based not on some wild dream but on the justifiable housing needs of the borough and on what the council knew it could realistically spend. In return the council received approval to spend a mere £2·8 million, which is not enough, given the scale of the homelessness problem.
I know that when the Minister visited the area he had every opportunity to reassure himself that the allocation from the Government was being properly and efficiently spent. I wonder why the Government are so blinkered and determined. Why do they insist that market forces alone can deal with housing policy? Why do they prevent councils from building much-needed family houses?
I am worried about the new provision that allows purpose-built accommodation for elderly and disabled people to be sold off. In the long term that is making matters worse. It is ludicrous that councils have not been allowed to spend all the money from council house sales on building new homes for people on the waiting list.
In Kidsgrove we have an area known as Birchenwood, which is reclaimed land; we are pleased to have had Government support, in conjuction with the local council, for reclaiming that land. Of the 37 acres of derelict land that have been reclaimed and are now ready for development, 12 were originally earmarked for council housing, but they have already been sold to the private sector.
Twenty-five acres remain. Outline planning permission has already been given for housing. I would like to hear from the Minister a commitment that he would consider both public and partnership housing bids on that site for a housing allocation for the future. It is nonsense to expect people who are on the housing waiting list and who are homeless to be able to afford houses which cost £60,000 to £80,000 new. It is also regrettable that the Housing Corporation, which could help with housing on that site, has had its money reduced so drastically. I want the Minister to take that into account when considering the bids for Newcastle for next year.
The Housing Minister has visited Kidsgrove and is familiar with the area. I should like him to acknowledge that there are special problems on Galleys Bank estate caused by British Coal's failure to tell people that houses built for miners who moved into the north Staffordshire coalfield were defective under the housing defects legislation. Will he accept that, unless the Government step in, the local council does not have the cash to make good all the houses belonging to the so-called eligible and non-eligible owners? Does he accept that that in itself would go a considerable way towards easing the specific problems of the homeless in that area? If he can give an extra £637,000 and then an additional £690,000 to the neighbouring Conservative-controlled Staffordshire Moorlands council to assist owners of designated buildings there, surely he can treat Newcastle in the same way.
In Stoke-on-Trent, where traditionally the council has provided a large number of houses and there is a great need for repairs to older stock, homelessness is also increasing, as the documentary on Channel 4 showed. The crisis of homeless families is deepening. The council rents out 28,000 houses. Approximately 7,000 have been sold. The main concern is that the council has not been able to replace the houses that have been lost.
During the Minister's visit to Stoke-on-Trent he could see that the council has proved over and over again that it will co-operate with central Government and that it is prepared to have partnership schemes where there would be a considerable improvement in conditions. Certainly the Minister was able to take advantage of the opportunity to see the good progress being made in Tunstall and Chell Heath, which I welcome, and which has been the result of extra money.
None the less, Government economic policy, leading to mortgage repossessions, and the refusal to allow councils to build affordable houses, are having their effect on a once-stable community. The housing chair in Stoke-on-Trent, Councillor Jean Edwards, told me that for the first time ever people are queueing to get into the family


homeless unit. The only lettings that the council can make are to homeless families. Couples and single people do not stand a chance of being housed, Homelessness is a major problem in Stoke-on-Trent. The local councils are doing the best they can. They know best what needs to be done. The fact remains that, in 1989–90, £36 million was needed to deal with the housing problem but only £9 million was agreed by Government.
In the week of the local government elections voters all over the country will be voting for Labour-controlled councils which have pledged to deal with the shortage of affordable accommodation for rent and for sale. When even the Tory-controlled Association of District Councils pleads for more cash to invest in housing we know that the Government are in deep trouble. The Government have created a crisis. I welcome the opportunity of the Adjournment debate to hear from the Minister precisely what his proposals are to tackle the growing problem of homelessness; and especially how he proposes to assist councils which have to deal with homeless families in Stoke-on-Trent, North.
This is a week, too, when North Staffordshire district health authority and other organisations are meeting for the first time to discuss the report on the health profile of Stoke-on-Trent commissioned by the city. The report confirms that health throughout the city is considerably worse than the national position. The city has a death rate 25 to 30 per cent. above the comparable national rate. Within the city there is not a single ward that does not suffer excess mortality.
I commend the report to the Minister. Bearing in mind the relationship between good health and good housing, and the effect on ill health of high deprivation and housing conditions, I gladly present him with a copy of the report, if he has not already seen it. I ask him to bear it in mind when considering the housing allocations for my constituency. We owe it to those who are homeless to give them the basic right to a home of their own. I hope that the Minister will take account of the report on the health profile of Stoke-on-Trent.

The Parliamentary Under-Secretary of State for the Environment (Mr. Christopher Chope): I am sorry that the speech of the hon. Member for Stoke-on-Trent, North (Ms. Walley) has been so negative. I am sure that the hon. Lady will agree that housing conditions in Stoke-on-Trent are immeasurably better now than they have ever been; and there have been dramatic improvements during the past 10 or 11 years. That is not to say that there is not room for further improvement and I shall draw attention to some of the enterprises and joint ventures that are taking place in the partnership schemes.
It is a pity when people come to the House and adopt a thoroughly negative approach. That was not the spirit in which I visited Stoke-on-Trent exactly five weeks ago today. I enjoyed the visit. It was constructive, and I looked closely at the problems drawn to my attention. I know that as a result of that visit Stoke-on-Trent city council is going to send forward a more detailed submission. Stoke's bid for resources has to be considered alongside other bids, but Stoke has not done badly out of the housing investment programme. In fact, it has done rather well.
This year, in 1990–91, the housing investment programme allocation in Stoke-on-Trent is £16·605

million. That compares with £5·798 million last year. It has gone up by almost three times. For the hon. Lady to suggest that the Government are mean in their allocations to Stoke-on-Trent is unfair and is not borne out by the facts.

Ms. Walley: I should like to correct the Minister and point out that I welcome the partnership schemes that have got under way. If he reads my text when it appears in Hansard tomorrow, I do not think that he will find anything to contradict the fact that I welcome the partnership schemes that are taking place between the two councils involved and the Government. For the Minister to suggest otherwise is unfair.
This year there is an improvement in the housing allocation to Stoke-on-Trent, but the point that I made was that during the past 10 years we have had a progressive reduction of money available which has led to an accumulation of problems that we now need to tackle on an urgent basis because of the homelessness problem in the city and in the borough of Newcastle-under-Lyme.

Mr. Chope: I am grateful to the hon. Lady for confirmation of her support for the partnership schemes. The Government are determined that they will play a full part in supporting the continuing improvement of housing in both the public and private sector in Stoke.
The mechanism by which local authorities formulate their housing strategy is, as the hon. Lady knows, the housing investment programme review. They publish their detailed proposals, including their bids for resources, and my Department responds, following discussions with the councils, with general and specific allocations of resources for the financial year in question. It is too early to start talking in detail about allocations for next year, but councils are already thinking ahead and preparing their thoughts on allocations and bids for next year. I am sure that Stoke is far up in the field in doing so.
Stoke has one of the largest increases in resources of any local authority in the west midlands. That surely demonstrates the Government's commitment to supporting the drive to improve housing conditions in Stoke arid will enable the city to continue with the programme for substantial improvements generally to their own housing stock and to older privately owned housing, as well as to designated defective housing, to which I shall return.
Over and above the yearly allocations of housing investment programme resources, we have made very substantial resources available to improve run-down council estates by means of the Department of the Environment's estate action programme. That is an additional source of funds for the local authority. In close co-operation with my Department, the council is invited to work up detailed proposals to improve its run-down estates. Wide-ranging objectives are set, including improvements to the fabric of the houses or flats, environmental improvements, local estate-based management and employment initiatives.
When I visited Stoke I saw the Chell Heath estate action scheme and I was very impressed with the progress that has been made. It is a major success story, where a partnership between the city council and the priority estates project has benefited from £6 million additional investment from the Department of the Environment for improvement work. A further £1·2 million has been set aside for this year's programme. That is an improvement


programme on an existing estate, and we might well ask rhetorically how it was ever allowed to get into such a state. Now those major improvements are being made. If resources are put into improving the housing stock, often that has to be at the expense of building new houses. I am sure that the hon. Lady agrees that it is important that the existing housing stock should be improved so that it provides the best quality housing conditions.
An especially encouraging feature of the Chell Heath project is that the council is firmly committed to the establishment of an estate management board, whereby tenants will have a major say in decisions on the way the estate is managed. Since the declaration of Chell Heath as a priority estates project, the benefits are already becoming clear with falling void rates, better control of repairs and a decrease in the number of abandoned properties.
Stoke has a comparatively high proportion of older housing in private ownership, much of which, although in need of improvement, remains substantially sound and where the occupants, both owners and tenants, wish to preserve their local communities. The provisions of the Local Government and Housing Act 1989 in respect of an area renewal approach and the new standard that will determine whether a dwelling is fit for occupation will be significant for Stoke-on-Trent.
A new system for renovation grants will be introduced on 1 July. It will provide financial help to those who can least afford to pay for essential works to their properties. For those who qualify, the grants will apply whether they are an owner-occupier, a landlord, a long-lease holder or a tenant. The underlying principle of the new system is to focus assistance on bringing properties up to a new standard of fitness. That will be of great value in tackling the remaining problems, especially of the older private housing in Stoke and similar areas. I shall explain in a moment how it is also of value to the occupants of defective precast reinforced concrete houses.
An important element of the new system is to enable local authorities to declare renewal areas, which will form an integral part of many authorities' strategic plans. Declaration of an area will not only provide a way of concentrating public resources to maximum effect, but will stimulate private investment by giving residents and others such as developers, housing associations and financial institutions confidence in the future of the area.
My Department has recently invited Stoke-on-Trent council to bid for a share of the substantial additional resources that have been set aside for that purpose, and no doubt the authority will be considering how it can best take advantage of the new measures to improve conditions in all its private housing estates, both old and not-so-old, traditional and non-traditional construction.
The first pilot scheme in the country leading up to the legislation was set up two years ago in the city in the Tunstall area. I had the opportunity to see the progress being made there during my visit in March. It has proved a very successful scheme and has led to partnerships with local businesses, financial institutions, housing associations, the neighbourhood revitalisation service, community architects, residents and others to tackle the problems of the area. The Government have put additional support into the Tunstall scheme totalling £250,000 in 1988–89, £800,000 in 1989–90 and £1·6 million in the current year.
The hon. Lady will know that the Government look to the housing associations for the provision of new subsidised housing for rent. We have substantially increased the amount of resources available nationally to the Housing Corporation for that purpose, and over the last three financial years a total of £15·6 million has been allocated by the corporation to housing associations for new housing for rent in Stoke. A further £3·5 million has been allocated for housing for sale. For 1990–91, the proposed programme for housing association funding for new housing for rent and sale is £6·8 million and £850,000 respectively, and I expect the level of investment to be maintained in future years. That is a further demonstration of the Government's commitment to fund new housing association developments in Stoke, and I know that is welcomed by the council.

Ms. Walley: In view of advice that I received this afternoon from officers of Newcastle council, can the Minister let me know, now or in due course, what opportunities there might be for housing associations to build family housing in the Kidsgrove area of Newcastle and whether any of the new money to which he has just referred can be used for that purpose?

Mr. Chope: I shall certainly write to the hon. Lady about that. As she will have gathered, my response is based on housing in Stoke-on-Trent, which is the subject of tonight's debate. I know that some parts of her constituency come under a Newcastle local authority, but I hope that the House will forgive me for concentrating particularly on the city of Stoke-on-Trent.
Turning to the problem of defective precast reinforced concrete houses which I saw on my recent visit to Stoke, as the hon. Lady knows, the properties were originally built by British Coal for its employees. I was encouraged to hear from the city council that it is involving residents, owner-occupiers and tenants in working up proposals to improve conditions. The hon. Member and the leader of the city council left me in no doubt about their concern for the future of the particular estate we visited at Weston Coyney, where there are both Cornish and Wates type houses.
I support the council in its declared intention to adopt a much more pro-active role in future. It has already served more than 200 statutory repair notices and more than 20 houses have had work carried out by default. In addition, the council has tried to ensure that houses are kept in a reasonable condition; that vacant properties are made secure; that the estate is visited regularly by council officials; and that privately owned common areas and gardens are cleared of rubbish regularly. The council has also intervened in disputes with landlords and is working to foster a community spirit where it has been instrumental in establishing and helping to run residents' and tenants' associations. My discussions during that visit showed that a variety of solutions appropriate to the estate were being considered. They fall into a number of categories, and the leader of the city council said that he would write to me with more details of the city council's proposals.
At the end of my visit to Stoke I had constructive discussions with the hon. Lady and with the leader of the council. As a result, there is a feeling of confidence that the Government are committed to improving housing conditions in Stoke in addition to the magnificent record of improvement over the past 10 years or so. However, it


remains for the city council to decide its own priorities on housing. That is what local democracy and accountability are all about, and no doubt there are arguments in Stoke as to what those priorities should be.
During my visit some concern was expressed about the number of houses that had been demolished by the city council, as that obviously reduces the housing stock. Some but not all those houses were obviously unfit. More recently, the council has adopted a different approach and has decided to refurbish more houses rather than demolish

them. It is always easy to be wise after the event, but if there had not been so much demolition earlier on there would be more houses for people in Stoke-on-Trent. Those were policy decisions taken by the city council and the city council has to remain accountable to the local people for those decisions.

Question put and agreed to.

Adjourned accordingly at twelve minutes to Eleven o'clock.